Rand shrugs off local fundamentals as it continues recovery

The rand remained on the front foot in morning trade on Friday (23 August), in-spite of  ‘local fundamentals’ pointing to a difficult period ahead for South Africa.

Reuters reported that morning gains were driven by the National Treasury’s assurance to cut costs and keep spending down.

“Rating agency Moody’s welcomed the move, saying the government would likely absorb extra financial support for Eskom with new revenue and expenditure measures in October’s budget review, with departmental cuts an option.”

In mid-morning trade on Friday, the rand was at the following levels against the major currencies:

  • Dollar/Rand: R15.17 (0.52%)
  • Pound/Rand: R18.53 (0.87%)
  • Euro/Rand: R16.80 (0.56%)

Bianca Botes, treasury partner at Peregrine Treasury Solutions, noted that the past week saw some relief in terms of trade friction, allowing market sentiment to recover somewhat. “The rand however remained subdued for a large part of the week, as local fundamentals continue to weigh heavily on the country and its ability to attract sustainable long-term investment which should translate into subsequent growth.”

The currency analyst said that while declining global growth remains a key risk for markets, the focus will shift to the central bankers of the world today, as they meet for the Jackson Hole Economic Policy Symposium.

“Discussions relating to economic performance, monetary policy and the position of each central bank will take place, with markets taking a keen interest in the address due to be delivered by Fed Chair, Jerome Powell, later today.”

In South Africa, “our broken record remains stuck in a groove with the dominant elements still being the ongoing Zondo commission, Eskom, Moody’s and of course the pressure on President Cyril Ramaphosa,” said Botes.

Parliament turned the heat on the president this week, with a large portion of the attention remaining on the controversial Bosasa’s donation to Ramaphosa’s 2017 election campaign.

“With the contribution being marginal in the greater scheme of things and the election rules allowing for private fundraising, we cannot help but feel that this matter is being used to misdirect the attention of the nation while the sinister and corrupt deploy their agendas in the background,” Botes said.

It has been a quiet week for South Africa from a data perspective, with CPI coming in lower than expected in July at 4%, leaving room for the SARB to deploy additional stimulus in terms of interest rate cuts in an effort to assist the economy.

The rand exhibited volatility this week, reaching lows of just above R15.49/$, before retracing back to R15.20 during early trade on Thursday. “The cool down in global trade tension assisted in the recovery, while ZAR short sellers ran out of steam, following the overselling witnessed earlier this month.

“We would tread lightly, though, as any hawkish comment from the Federal Reserve at the Jackson Hole Symposium could easily send the rand tumbling once more,” Botes warned.

She said that the currency market volatility is here to stay, while performance will largely be event driven.

“While the rand has managed to break below R15.20, and started the move to a leg stronger, our long term view remains biased towards a weaker rand. In the short and medium term, however, the rand could see a retracement to the R14.65 mark, should it manage to muster enough momentum,” Botes said.

“We remain reliant on global risk sentiment to determine direction of the currency, while local elements merely dictates the speed at which it moves in the determined direction.”

Read: Rand rallies on local data surprise

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Rand shrugs off local fundamentals as it continues recovery