Rand edges up as S&P leaves rates unchanged

The SARB stuck to the neutral-hawkish guidance offered in recent weeks by Governor Kganyago. He noted that inflation risks are now assessed to be tilted to the upside, but with only very modest upside revisions to their long-run forecasts.

As expected, on Friday S&P affirmed South Africa’s BB foreign rating with just a “stable” outlook. The agency upped its growth forecasts but said these remain tentative and that government debt remains on a rising path. They highlighted that post the political transition there have been key economic and social reforms pursued, but the challenges are still considerable.

Most market analysts remain structurally bullish and expect USD-ZAR to trade in a wide range between 12.00 and 13.00 in the short run. The main fundamental driver for the currency will be the fluctuations of the US Dollar, to which it is highly negatively correlated. A stronger Dollar tends to impact the SA economy disproportionately because much of the country’s debt is either denominated in US Dollars or from America, so a stronger Dollar increases their loan repayments. Domestic fundamentals are unlikely to impact on the currency, except in extreme circumstances.

For the rest of week, Thursday’s PPI inflation figures will be watched closely for clues on how quickly PPI inflation is moderating. In other releases, the trade balance figures will shed more light amidst concerns that the trade surplus is not growing as expected.

Day	What’s happening?	Why it’s important
Thursday	Producer Price Index	The Producer Price Index released by the Statistics South Africa Head Office measures the average changes in prices in primary markets of South Africa by producers of commodities in all states of processing. Generally speaking, a high reading is seen as positive (or bullish) for the Rand, whereas a low reading is seen as negative (or bearish).
Thursday	M3 Money Supply	It calculates all currency in circulation, bank deposits, repurchase agreements, debt securities up to two years and the value of money market shares. It is considered an important indicator of inflation. Usually, an acceleration of the M3 money is considered positive, or bullish for the Rand, whereas a decline is considered negative.
Friday	Trade Balance	A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the Rand. If a steady demand in exchange for South African exports is seen, that would turn into positive growth in the trade balance, and should be positive (or bullish) for the Rand.

– Calvin Matsaure