Rand value for 4 November: Three factors behind ZAR’s surprise recovery

There are fewer currencies which operate on a more volatile basis than ZAR. The rand value has been on a rollercoaster ride in the past seven days, which has concluded with a shock surge against the US dollar.

The South African currency had plummeted through the floor on Wednesday, after Tito Mboweni’s Medium-term budget speech pulled no punches and painted a glum economic future for South Africa. Growth forecasts for the year is down to just 0.5%, and you know things are bad when ministers suggest cutting their own salaries and luxury items.

Exchange rate: Dollar to rand value on Monday 4 November

But in the face of overwhelming negativity, the rand value has improved over the weekend and continues to head in the direction. After peaking at an eye-watering R15.17 to the dollar last week, ZAR dropped to 14.78 on Monday morning – an improvement of 2.6% over the past five days.

In the early afternoon, the ratio crept back up to $1 : R14.82, but this still marks a significant improvement in a relatively short space of time, breaking back through the R15 barrier. There are a few factors behind this defiant recovery:

Why the Rand value has improved:

Moody’s statement gives SA breathing space

The credit ratings agency decided to spare South Africa the indignity of junk status, and stopped short of downgrading South Africa from its BAA3 status. However, Moody’s said they would assess the situation again in three months’ time, after changing their outlook from “stable” to “negative”.

Rand value steadied by weakening US dollar

The job creation statistics still look very positive in America, but the dollar is waning on what was once secure ground. The ongoing trade war with China is likely to see some sort of agreement reached this week, but there is uncertainty over who will be perceived to come out on top. Meanwhile, manufacturing numbers have dropped again, and according to financial expert Lookman Otunuga, the US market is facing troubled times

“Markets are currently pricing a 44% chance of at least one rate cut by March 2020, and if there’s further evidence of deteriorating US business confidence, we’re likely to see those odds surge.”

Lookman Otunuga

Relative calm after last week’s storm

Big budget announcements have the potential to spook the market and see the rand value drop at an alarming rate. Before the weekend, Mboweni’s speech. Negative unemployment data and questions over the plans to rescue Eskom created something of a perfect storm. With fewer “major” issues to contend with this week, the impact of Moody’s statement and the dollar’s performance have been felt more positively in SA.