CAPE TOWN, SOUTH AFRICA – FEBRUARY 20: President Cyril Ramaphosa’s response to the debate of state of the nation address at the National Assembly on February 20, 2018 in Cape Town, South Africa. Ramaphosa responded the MPs debate of his maiden SONA speech that he delivered on Friday 16 February 2018. (Photo by Gallo Images / Jeffrey Abrahams)
The Rand holds steady in the face of mounting pressure ahead of today’s 2018 Budget Speech
Last week the Rand experienced its strongest week of 2018. The local currency gained 3% with Cyril Ramaphosa being sworn in as South Africa’s president after Jacob Zuma’s much hoped for resignation. Advances were made against the US Dollar from R12.02 to R11.62 by Friday’s close. In anticipation leading up to Zuma’s exit speech, the Rand held onto recent strength and began making further gains on Wednesday evening when Zuma addressed the nation and resigned as South Africa’s president.
CAPE TOWN, SOUTH AFRICA – FEBRUARY 20: President Cyril Ramaphosa’s response to the debate of state of the nation address at the National Assembly on February 20, 2018 in Cape Town, South Africa. Ramaphosa responded the MPs debate of his maiden SONA speech that he delivered on Friday 16 February 2018. (Photo by Gallo Images / Jeffrey Abrahams)
Since then the Rand has continued to add strength as Ramaphosa delivered the annual State of The Nation Address on Friday. He promised to fight corruption, inspire foreign investors and revive the local economy. Further, he said steps would be taken to fix state-owned enterprises, address debt levels and close the fiscal gap. The market enjoyed the speech and the good sentiment continued to buoy the Rand.
In terms of economic data, this past week saw unemployment improve by 1% while there was a minor contraction in retail sales. Looking ahead, this week is all about inflation data which has been on the decline over the past year. Any signs of a significant inflation pick up could lead to the SARB increasing inflation rates which would make the Rand more attractive to yield-seeking international investors thereby adding to the Rand’s strength.
On the political agenda, analysts and traders will be keeping a close eye on how Ramaphosa may reshuffle Zuma’s appointed cabinet in the coming weeks. The most important event this week for the ZAR is definitely today’s budget speech, to be delivered by finance minister Malusi Gigaba.
Key focus points for the budget speech will be details regarding the funding of proposed free education, increases in VAT, Capital Gains and Personal Income tax, as well as carbon and fuel levy hikes.
While the US Dollar may be showing signs of a reversal from its recent weakness, analysts project that the Rand could continue to strengthen to R11 and beyond over the coming weeks. As at 12pm today the Rand traded at R11.64. However, should the budget go badly you can expect the ZAR to go on a bit of a wobbly.
| Day | What’s happening | Why it’s important |
| Wednesday 21 February 2018 | Budget Speech 2018-2019 by Malusi Gigaba | Lays out government’s fiscal plans, tax regimens, and other policies that affect businesses, investors and consumers. |
| Wednesday 21 February 2018 | CPI & Core CPI (Consumer Price Index) | Gives the rate of price changes in household goods and services. Rising inflation leads to higher interest rates and ZAR strength. |
| Thursday 22 February 2018 | PPI (Producer Price Index) | Indicates the average costs of production. Similar to CPI, higher readings tend to yield currency strength. |
By Craig Jaffa
