South Africa must cut public s

South Africa must cut public spending

South Africa to cut public spending now or risk demotion by credit rating agencies

South Africa must cut public s

On Monday the Rand hit a two and a half week low, which was reversed in early Tuesday trade. A weaker US Dollar helped the Rand reverse some of its losses from the previous day. In slightly worrying news, South Africa has been given three months to cut public spending or face the risk of being downgraded by credit ratings agencies. This could have dire results as it would mean that South Africa would not be able to easily borrow money to speed up its growth. Effectively, the money in the ATM the country is using could dry up.

The Rand strengthened against the Dollar on Tuesday, closing at 11.75, compared to Monday’s close of 11.77.

The Rand’s appreciation against the greenback occurred despite Dollar strength, albeit mild, against some of the majors; the Dollar strengthened against the Euro and Pound but weakened against the Yen.

China has lowered its economic growth target for the second consecutive year from 7.5% in 2014 to 7% in 2015 and, like last year, the government is expected to miss this target in 2015. Slower growth in China implies slower commodity demand growth and the result will be Rand-negative. This less than optimistic outlook caused the ZAR to close slightly weaker at 11.81 on Wednesday.

Thursday through Friday saw the Rand weakening further as it walked straight into a hornet’s nest late on Friday afternoon when the US released surprisingly good unemployment figures, putting unemployment at 5.5% – the lowest level since May 2008. This good news increased expectations that the Fed could raise interest rates in the US, making it more attractive for investors.

As a result emerging and higher yielding currencies weakened as a whole, sending USD-ZAR to over 12.00 – the worst in 13 years.

The ZAR is expected to be under pressure through the week and focus outward with no noteworthy local data being released.

USDZAR @ 12.055
GBPZAR @ 18.215
EURZAR @ 13.1232
GBPUSD @ 1.5108
GBPEUR @ 1.3877