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South African rand firmer, rating reviews pose risk

Rand on firmer footing against the dollar.

South Africa’s rand was on a slightly firmer footing against the dollar on Monday after a turbulent run last week, although fears of two possible credit rating downgrades on Friday will cap any significant gains.

By 06:51 the rand was changing hands at 10.5730 per dollar, a touch stronger than Friday’s close at 10.5850 in New York.

It was up more than 2 percent from a 10-week low of 10.8050 touched last Wednesday as investors fretted about lacklustre growth prospects for Africa’s second largest economy, partly due to a drawn out platinum strike.

However, analysts said the currency was not out of the woods as recent weak economic data, including a first quarter GDP contraction, could prompt a sovereign credit downgrade from Moody’s and Standard and Poor’s on Friday.

“The rand is doing better again but an empty data calendar should keep it moving sideways mostly until Friday’s likely fireworks from the sovereign ratings actions,” Rand Merchant Bank currency analyst John Cairns said in a note.

“While credit ratings are often seen as a lagging indicator, the local mood is such that (negative) moves would be taken quite badly.”

Government bonds were firmer in early Monday trade, with yields for the 2026 and 2015 benchmark bonds shedding 4 basis points each to 8.195 percent and 6.57 percent respectively.

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Peter Nurcombe-Thorne

Peter Nurcombe-Thorne

Rosebank Wealth Group (Pty) Ltd
Moneyweb Click an Advisor
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Moneyweb Investor Issue 24

The relative strength of the rand has seen South Africans relax since the cabinet reshuffle and sovereign downgrades by S&P and Fitch. Don't be deceived - this is a self-inflicted wound. In the May issue of The Moneyweb Investor, we take a closer look to see which companies are likely to thrive and which will not, in the post-downgrade world.