The rand made strong gains against the dollar in Monday morning trade, as investors cheered positive US-China trade progress, while South Africa held on to its last investment-grade credit rating.<\/p>\n
On Friday, Moody\u2019s Investors Service changed the outlook on South Africa\u2019s credit ratings to negative from stable \u2013 but affirmed the Baa3 long-term foreign-currency and local-currency issuer ratings.<\/p>\n
“The rand held steady over the weekend, considering the adjustment of South Africa\u2019s credit rating outlook by Moody\u2019s late on Friday evening,” said Bianca Botes, treasury partner at Peregrine Treasury Solutions.<\/p>\n
“Most investors feel that the announcement had already been priced in, with short-term positivity seeing the rand moving stronger against the US dollar being probable during the course of the week. Sunday evening confirmed this frame of thinking, with the rand strengthening to R14.87\/$.”<\/p>\n
Looking ahead, Botes said that week will see Standard Bank PMI numbers being released on Tuesday, while manufacturing production PMI numbers are set for release on Thursday.<\/p>\n
Further abroad, the EU will see PPI numbers being released, while US PMI and trade data will be announced on Tuesday.<\/p>\n
Moody\u2019s held the nation\u2019s foreign- and local-currency readings at Baa3, one step above junk. The nation is already rated below investment grade at S&P Global Ratings and Fitch Ratings, both of which shifted its status to junk in 2017, Bloomberg said.<\/p>\n
If Moody\u2019s cuts South Africa\u2019s rating, the country would lose its place in the FTSE World Government Bond Index. Exiting it would spark an investor sell-off and outflows of as much as $15 billion, according to Bank of New York Mellon Corp, at a time when the nation needs portfolio investment to finance its persistent current-account deficit.<\/p>\n
A downgrade would also raise borrowing costs, complicating the government\u2019s efforts to balance the budget, Bloomberg reported.<\/p>\n
The change in outlook from Moody\u2019s reflects \u201cthe material risk that the government will not succeed in arresting the deterioration of its finances through a revival in economic growth and fiscal consolidation measures,\u201d the credit assessor said in a statement Friday.<\/p>\n
\u201cSouth Africa has been a car crash in slow motion,\u201d Cristian Maggio, London-based head of emerging-market strategy at TD Securities, said ahead of the market open. \u201cWe\u2019re still at a point where that car has not hit that wall, but you can definitely see that\u2019s where they\u2019re going.\u201d<\/p>\n
The rating affirmation affords South Africa a \u201cnarrow window to demonstrate faster and concrete implementation of reforms,\u201d South Africa\u2019s National Treasury said in a statement after the announcement from Moody\u2019s. \u201cEconomic reforms have to be implemented without delay.\u201d<\/p>\n
US Commerce Secretary Wilbur Ross expressed optimism the US would reach a \u201cphase one\u201d trade deal with China this month and said licenses would be coming \u201cvery shortly\u201d for American companies to sell components to Huawei Technologies Co.<\/p>\n
Trump told reporters Sunday a trade deal, if completed, will be signed somewhere in the US, Bloomberg reported.<\/p>\n
\u201cEveryone is kind of upbeat around the prospect of at least a partial China-US trade deal,\u201d Peter Dragicevich, a strategist at Suncorp Corporate Servcies, told Bloomberg TV. \u201cIt\u2019s going to keep equities pretty supported.\u201d<\/p>\n
The rand traded at the following levels against the major currencies on Monday morning:<\/p>\n