Rand Report: Rand edging up: Image: Supplied

Rand Report: Rand edging up

The Rand exhibited resilience by surpassing R19.05 against the US Dollar (USD) and exceeding R24 against the British Pound (GBP).

by Sable International

20-02-2024 16:46

in Money Matters

Rand Report: Rand edging up: Image: Supplied

At the beginning of this week, the Rand has shown strength, trading above R19.05 against the US Dollar (USD) and surpassing R24 against the British Pound (GBP).

USD/ZAR ascending triangle pattern

From a technical perspective, the USD/ZAR exchange rate appears to be developing an ascending triangle pattern, characterized by increasing highs while consistently testing the R19 mark. A breakout above this level could signal a significant upward trend, potentially leading to a depreciation of the Rand.

GBP/ZAR rising lows

Similarly, the GBP/ZAR exchange rate is demonstrating a pattern of rising lows, suggesting an upward trajectory that could approach the R25 level.

Recent concerns regarding the South African Rand stem from apprehensions about the country’s fiscal health. In the 2023 Medium-Term Budget Policy Statement (MTBPS), it was forecasted that the gross debt would peak at 77.7% of GDP in the fiscal year 2025/26, significantly exceeding the previous estimate of 73.6% made in February 2023.

Fiscal challenges and political landscape

These fiscal challenges are particularly worrying as South Africa approaches an election year in 2024. The ANC faces pressure to maintain power, potentially leading to increased government spending and further stress on an already overextended budget.

The financial markets typically react negatively to higher levels of borrowing, especially when such borrowing accompanies rising expenditures amidst declining revenues this has been the case in South Africa for several years, resulting in higher bond yields and lower credit ratings.

This backdrop has contributed to a weakening sentiment and underperformance of the Rand. The key question remains, how much of this underperformance is already factored into Rand’s value, and whether further depreciation is expected?

Despite some opinions suggesting that the Rand has become undervalued and that the market has already accounted for a worst-case scenario, signs of recovery remain elusive. Additionally, political concerns are rising, with polls indicating the possibility of the ANC losing its national majority. This scenario could lead to increased populism influencing budget decisions.

Fiscal strategies and foreign investment

There are also expectations that the budget will reveal plans to tap into the country’s gold and foreign exchange reserves. Concerns are growing regarding how these funds will be allocated, with speculation that they may be directed towards increasing public sector wages rather than reducing national debt. Such fiscal strategies could deter foreign investment and diminish confidence in South Africa’s economic management.