Rand shrugs off riots, protests and social unrest

While South Africa has been dogged by negative local news this week, sentiment around the economy has been more positive.

This is according to Bianca Botes, treasury partner at Peregrine Treasury Solutions, who said that the economy has shown a number of green shoots this week including:

  • The GDP: While markets expected 2.4% growth, the SA economy outshone itself, growing by 3.1% quarter-on-quarter and 0.9% year on year;
  • The 77-page economic reform plan by Treasury: Only 77 pages long, the plan is deemed to be not only achievable, but digestible by the average South African;
  • Electricity: Even though fears of load shedding pop up occasionally, the lights have remained on since May, which is quite an achievement considering the dismal position of the SOE.

“The rand also displayed stellar performance this week, gaining ground against all major currencies in a relatively small window of time,” said Botes.

“The GDP figures gave the unit the impetus it needed to break out of its trading range of R15.17/R15.35, moving below R15.10 within minutes. The move stronger was assisted by subdued data from the US, which saw the dollar coming under pressure.

“These elements, coupled with an overall less treacherous global landscape, are assisting emerging markets to capitalise on the renewed risk appetite, with further potential for the rand to strengthen in the short term should market conditions remain favourable.”

Buoyant rand

Botes said that South Africans should expect a buoyant rand in the short-term, with the local currency being influenced by global factors such as trade dynamics, growth expectations, and Brexit.

However, she warned that the uneasy situation on the ground could very easily spill over into a Pan-African conflict as retaliation by foreigners against South Africa businesses takes hold in the rest of Africa – with incidents already recorded in Nigeria and Zambia.

“The week ahead will see the release of EU and UK GDP and unemployment data, with expectations for EU growth to remain largely subdued at 0.2% quarter-on-quarter. The US is set to release non-farm payrolls, the unemployment rate today and Fed Chair Jerome Powell will give an address later this evening.

“China is due to release imports, exports and balance of trade data on Sunday. Locally, we will see the release of Q3 business confidence on Wednesday.”

Botes said that the rand can be expected to remain below R15/dollar for the time being. However, any escalation of tension would see the rand rapidly lose ground again.

The tone of the Fed this evening will also determine the landscape of markets heading into next week, she said.

This is how the rand was trading against major currencies

  • ZAR / USD: 14.88 (-0.32%)
  • ZAR / GBP: 18.34 (-0.34%)
  • ZAR / EUR: R16.42 (-0.21%)

Read: South Africa’s Kganyago confident on economic growth after rebound

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Rand shrugs off riots, protests and social unrest