Nicola Mawson
The rand continued its wild ride as one of the world’s most volatile currencies yesterday, weakening 0.7% to R18.07 by 4pm and pulling back from a one-week high of R17.95/$1 reached on Monday following an uplift from S&P Global Ratings’ revision of South Africa’s debt outlook to “positive” from “stable”.
Investec chief economist Annabel Bishop yesterday the currency was highly volatile due to multiple drivers, with the South African Reserve Bank (SARB) interest rate decision this week likely to drive it weaker on an expected cut of 25 basis points.
Bishop added that positive sentiment from an improved outlook from S&P implied a potential upgrade to the credit rating in around 18 months’ time if South Africa sees fiscal consolidation.
Jimmy Moyaha, founder and managing director of Lebowa Capital, told Business Report that sentiment has recovered slightly from last week.
“We are seeing positive moves on commodities which is, in turn having a positive effect on resource counters. Local sentiment was boosted further by S&P Global Ratings revising our outlook to positive,” he said.
Earlier this month, Fitch said that, should the National Treasury meet its debt payment targets, this could be positive for South Africa’s rating.
Moyaha said such tone “suggests that South Africa is on course for a potential ratings upgrade in the future if we can continue on the current improvement trajectory”.
However, Moyaha cautioned that US investors are nervous about the potential of a recession.
“These are some of the factors the Monetary Policy Committee will likely take into account when looking to cut rates this week,” he said.
Moyaha also said the consumer inflation, due out today, could provide more insight into what the SARB may do tomorrow.
“Though we are optimistic for a 50 basis points cut, we know the SARB, like the Federal Reserve, will not be overzealous and so it is more probable that we see a 25 basis points cut,” he said.
Another factor the central bank will consider, he said was that the SARB may take into account that the US has one more interest rate meeting this year, in December, while South Africa has one.
Any rate cut, Moyaha noted, would weaken the local currency as investors would receive a lower return for their investments in rands. He cautioned that all moves in currency depended on what US President-elect Donald Trump does when he takes office towards the end of January next year.
Nolan Wapenaar, co-chief investment officer at Anchor Capital, however said there has been a “glimmer of good news” following S&Ps’ decision since the decline in the rand and other emerging market currencies after Trump was elected.
Wapenaar said that, should the trade surplus remain intact and there was continued positivity, the “Trump trade” was now fully priced in.
Anchor Capital sees the local currency ending the year weaker than expected, maybe around the mid-R17s, although the longer-term outlook remains for some recovery from its oversold status.
As TreasuryONE currency strategist Andre Cilliers puts it: “Sustained improvements will depend on the GNU’s ability to implement reforms that attract private sector investment and enhance infrastructure.”
BUSINESS REPORT