(20 FEBRUARY 2019)DAILY MARKET BRIEF 2:South African rand faces risk
The South African rand remains under heavy pressures, as investors are worried. Today’s budget announcement will be closely watched. Among the three major rating agencies, only Moody’s maintains the investment grade rating to government debt. Both S&P and Fitch downgraded to junk in 2018 due to political turmoil and poor mid-term budget report in 2017. Still, restructuring of the indebted energy department could help, if constructive solutions are put forward. General elections 8 May remain a big unknown. President Cyril Ramaphosa barely has had time to make his mark, and his support within the parliament and the African National Congress party remain thin.
According to the South African Reserve Bank (SARB), no interest rate cuts are likely. Following the first rate hike in more than two years of November 2018, SARB is not ready for further tightening. The economy is expected to have expanded less than 1% in 2018 (estimated at 0.70%) while annual inflation figures, given at 4% in January (prior: 4.30%) and lowest for 11 months, suggest a moderation due to weakening oil prices and a stronger rand. Risks of a sharp drop in private consumption and weakening economic sentiment are rising. We favour long USD/ZAR positions. Currently trading at 14.1020, USD/ZAR is heading along 14.1450 short-term.
