Rand makes strong gains against the dollar after Moody’s ratings decision

The rand firmed by more than half a percent against the dollar in morning trade on Monday, cheered by the news that South Africa escaped a third junk rating as Moody’s Investors Service kept its assessment of the nation’s debt unchanged on Friday, citing a more transparent and predictable policy framework under president Cyril Ramaphosa.

Moody’s upheld South Africa’s baa3 credit rating – one notch above junk – and adjusted the country’s outlook from negative to stable.

“The recovery of the country’s institutions will, if sustained, gradually support a corresponding recovery in its economy, along with a stabilisation of fiscal strength,” Moody’s said.

By 08h00 on Monday, this is how the rand stood against the major currencies:

  • Dollar/Rand: R11.66   (-0.65%)
  • Pound/Rand: R16.50  (-0.38%)
  • Euro/Rand: R14.42   (-0.56%)

Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions said as markets open on Monday, the rand is expected to gain some ground in the short term as investors reposition themselves.

“All eyes now shift towards the MPC on the 28th. The SARB is expected to hold repo rates steady at 6.75% as the economy slowly show signs of an uptick in line with global markets,” she said.

The rand led gains among the world’s major peers in the week ended Friday, climbing almost 2% against the US dollar on speculation South Africa would avert a downgrade, Bloomberg said. The currency has risen more than 5% so far in 2018.

Botes said that he agencies seek to answer the following questions:

  • Can the country service its interest and debt payments? and
  • Can policy drive economic growth and activity?

“The recent budget speech as well as the leadership transition both appealed to Moody’s. Although this news is positive, one must still consider the long road ahead for South Africa: the next goal being to have the previous downgrades reversed.

“Economic growth, employment, and fixed capital investment will be key elements to ensure a robust investment environment moving forward, as well as a clear path in terms of the mining charter and the redistribution of land.”

Read: South Africa dodges junk status

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Rand makes strong gains against the dollar after Moody’s ratings decision