Rand hits under R18 to the dollar

 ·19 Jun 2024

The South African rand hit its strongest level in almost a year, trading at R18 to the dollar on Wednesday (19 June), with the country is moving towards an official Government of National Unity and only a few more steps remain.

The first big hurdle has already been cleared, with the ANC-DA-IFP-led bloc electing agreed-upon leaders for the country, including Speaker, Deputy Speaker and President at parliament’s first sitting last week.

This was then followed by appointments at the National Council of Provinces and with premiers at the provincial level.

The inauguration of President Ramaphosa will take place on Wednesday, followed by the announcement of his cabinet in the coming days, which will take centre stage in local markets.

“Investors will keep a close eye on the size of the cabinet, as well as the selected ministers for each function of government,” said Citadel Global director, Bianca Botes, adding that the rand is on the “front foot”.

According to Investec chief economist Annabel Bishop, the rand’s strength comes following high degrees of volatility ahead of and during the elections, which has turned to hope after the post-election negotiations proceeded peacefully, offering some stability.

While the rand’s move toward R18.00/$ is not wholly unexpected—the currency was heading in the direction before the elections as well—Bishop said that it would likely struggle to settle under that level, given that R18.00 is a key resistance level and difficult to break through.

Indeed, after briefly moving a few cents below R18.00 on Wednesday (R17.97-R17.99), the local unit was back to R18.02 within minutes.

The last time the rand traded under R18.00/$ was July 2023.

In addition to local proceedings with setting up the seventh administration, Bishop said that markets are also focused on the United States and the timing of interest rate cuts.

This will keep markets volatile around upcoming data releases in the States, she said.

“South Africa’s election outcome seen as promoting stability, democracy and unity; financial markets attention will likely turn to the US interest rate cut timing, and see modest volatility on related upcoming US data releases.

“The better than expected outcome of the US core CPI inflation rate for May last week is providing an underpin for rand, and EM currencies, strength, with the rand unable to see the full strengthening effect last week on domestic political uncertainty,” Bishop said.

The economist noted that global financial markets have pulled the expectation of the first US interest rate cut (with 100% certainty) to the November FOMC meeting. The December FOMC is building up expectations of a second cut, but not with a 100% certainty.

Bishop argued that despite the wave of relief and catching-up following the 2024 election, the rand will still be taking most of its direction from global markets.

“US economic activity has shown marked resilience, and combined with the sticky nature of its inflation’s descent, has caused the delays in the advent of the US interest rate cutting cycle, and consequent volatility for the rand.

“The rand’s direction will continue to be determined by global events, particularly the US markets, but it likely to tick stronger this week on the improving political environment for South Africa, supportive for stronger growth,” she said.

On Wednesday morning, the rand was trading at these levels against major currencies:

  • ZAR/USD: R18.02
  • ZAR/EUR: R22.89
  • ZAR/GBP: R19.34

Read: South Africa’s Presidential inauguration: Everything you need to know

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