South Africa’s currency has regained some of its strength lost ahead of the 2019 budget speech – helped by international factors, and a likelihood that Moody’s will spare the country from a downgrade next month.
According to Bianco Botes, corporate treasury manager at Peregrine Treasury Solutions, currency markets largely priced in the postponement of the 1 March deadline for a trade agreement to be reached between the US and China, announced by President Trump on Monday (25 February).
“As a result, the rand along with other emerging markets managed to gain ground against the greenback, breaking through the key R13.90 level during trade,” she said.
Markets will look towards Federal Reserve chairman Jerome Powell’s testimony today when he delivers his semi-annual update to reaffirm the Fed’s stance on interest rates as well as anticipated economic conditions, Botes said.
According to Reuters economists, Trump’s announcement to postpone is the clearest sign yet that China and the United States were near an agreement to end a trade war that has slowed global growth and disrupted markets.
“The suggestion from President Trump that he is planning for a summit for President Xi and himself will also raise investor excitement that a resolution to this long-standing trade conflict is nearing a conclusion,” Jameel Ahmad, global head of currency strategy & market research at FXTM, said in a note.
The rand took a knock pre-budget and post speech last week, with finance minister Tito Mboweni announcing that the South African government would bail out Eskom to the tune of R69 billion.
Mboweni also pointed to a slower growth forecast, wider budget deficit and limited room to manoeuvre.
However, despite the problems, the market received the budget positively, because of its frankness and transparency in dealing with South Africa’s problems.
Ratings agency Moody’s – the last to have South Africa above investment grade – said that the budget showed South Africa’s challenges, but noted that the country’s debt structures were in a good position, and if Eskom and other SOEs are dealt with using a solid plan of action (made available publicly), the country could turn things around.
Here’s how the the rand is performing against the major currencies:
- ZAR/USD = 13.86 (-0.18%)
- ZAR/GBP = 18.19 (-0.21%)
- ZAR/EUR = 15.74 (-0.44%)