The rand strengthened by close to a percent against the dollar in mid-morning trade on Thursday (2 July), as risk appetite received a welcome boost from upbeat global economic data.
This is according to Bianca Botes, executive director at Peregrine Treasury Solutions, who noted that after the move to Level 3 lockdown on 1 June and a significant reopening of the local economy, the Absa Manufacturing PMI rose to 53.9 in June 2020 from 50.2 in May 2020.
“This represented the fastest expansion in South Africa’s manufacturing sector since August of 2013 and together with positive global data helped to neutralise Tuesday’s grim GDP (Gross Domestic Product) figures,” she said.
According to Stats SA, GDP growth for 1Q20 was recorded at -2%, marking the third quarter of decline in succession, following drops of 0.6% in 3Q19, and 1.4% in 4Q19.
Notably, the data reflects only the first three months of 2020, before the nationwide lockdown was fully implemented (27 March).
The country’s economy likely contracted more than 30% in the second quarter when restrictions to curb the spread of the coronavirus shuttered almost all activity for five weeks, according to central bank forecasts.
The annualised drop in the gross domestic product is forecast at 32.6% for the three months through June from the previous quarter, the Pretoria-based Reserve Bank said.
That would be the deepest quarterly decline since at least 1990. The central bank’s projection, released on 29 June, shows the economy will expand on a quarterly basis in the three months through September, which means the technical recession will be over.
Botes noted that non-farm payrolls and initial jobless claims from the US are scheduled for release later on Thursday, which will be crucial in determining the momentum of the move stronger, with a trend towards R16.50 in the short term back on the cards.
Economists surveyed by Bloomberg expect that the US economy added three million payrolls in June and that the employment rate declined to 12.5%. The US lost a record 20.5 million payrolls in April, following the outbreak of Covid-19.
The rand traded at the following levels against the major currencies:
- Dollar/Rand: R16.92 (-0.80%)
- Pound/Rand: R21.19 (-0.24%)
- Euro/Rand: R19.11 (-0.43%)