The SA Daily
18 October 2019
Rand vulnerable, but firmer
- The rand is 1.2% stronger now on a nominal trade-weighted basis than a week ago. The US trade-weighted dollar (DXY) has been sliding, which has supported the rand. The rand is at R14.83/$ this morning (yesterday: R14.83/$). To the pound, the rand is at R19.06/£ (R19,06/£ yesterday), and to the euro it’s at R16.50/€ (R16.50/€ yesterday).
- The rand was over R15.00/& for 12 consecutive days in the last three weeks but now has found some firm ground just shy of R15.00/$ since last Friday. We’d ascribe this partly to the US-China trade deal, albeit only partial and still lacking details. The rand was also stronger yesterday after government’s stated approval of the Integrated Resource Plan (IRP2019).
- The rand next faces the Medium Term Budget Policy Statement (MTBPS, 29 October); the Moody’s rating review on 1 November which is being complicated by renewed power cuts as of this week though we’d still foresee no negative ratings action; and the anticipated turnaround plan for Eskom. In the background, the rand also has to contend with the global risk factors that have been driving EM currencies’ direction.
- The rand is within our econometric fair value estimates. We see it firming to R14.50/$ end-2019, premised on no Moody’s downgrade; a market-friendly turnaround plan for Eskom, and no further deterioration in SA’s fiscus. It could even firm to R14.00/$ by end-2020, premised on reforms; continued global monetary policy easing and a global growth recovery.
Read PDF