Rand breaks through psychological R13/$ level

Cape Town – The rand has broken below the R13.00 to the dollar level as the local currency gained on a weak dollar and the suspension of the Mining Charter.

The rand strengthened by over 0.3% to R12.98 to the greenback at 09:30 on Monday, following a volatile period in the past month which saw the unit slide to R13.63.

“The US dollar ended last week on the back foot due to weak US retail sales and inflation data as well as dovish remarks by Fed chair [Janet] Yellen,” said RMB analyst Isaah Mhlanga in a morning note on Monday.

“The combination of a weak dollar and the suspension of the local new Mining Charter, pending a judicial review, put brakes on the USD/ZAR rally that was on a one-way weakening streak.”

NKC African Economics on Monday noted that the rand broke through the “psychological R13/$ level”.

“Following the rout last week, partly due to policy uncertainty caused by controversial policy debates at the ruling ANC party’s policy conference and the Public Protector’s proposal to change the central bank’s mandate, the South African currency benefited from some positive news developments this week, such as the Public Protector retracting her proposal, the finance minister’s calls to restructure state-owned entities and to renegotiate the contentious new Mining Charter as well as confirmation that close President Zuma ally Dudu Myeni will not serve another term as South African Airways chairperson.”

Mhlanga said the market looks forward to the South African Reserve Bank’s (SARB's) monetary policy committee (MPC) repo rate announcement on Thursday.

“Arguably, this will be one of the most difficult MPC decisions this year as the inflation profile and weak economic growth point to rate cuts,” he said.

“But the Public Protector’s recommendations to include socio-economic objectives in its mandate can be perceived to have put pressure on the bank should it cut rates.

“We expect the local CPI data (to be released on Wednesday) to print at 5.2% year-on-year in June from 5.4% in May, and the SARB to keep rates unchanged due to risks of exchange rate weakness posed by credit rating downgrade concerns. Local retail sales data will also be released this week and we expect a contraction of 0.8% year-on-year (-2.5% month-on-month).”

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