Strong week for the rand - but keep an eye on Trump, SOEs

The rand has shown surprising strength in the past few days, offering market participants an excellent opportunity to buy foreign currency, Bianca Botes, treasury partner at Peregrine Treasury Solutions, commented on Thursday.

She explained that the rand benefited from an easing in the tension between the US and China ahead of the G20 summit.

Another factor that worked in the favour of the rand is what she describes as the dovish stance of the US Federal Reserve. This is coupled with "the EU leaning towards monetary stimuli".

Furthermore, a R230bn bailout for Eskom and the retained stable outlook by rating agency Moody's, positively impacted the rand, in her view.

Risks

She cautions, however, that while the rand is currently firm, there are certainly risks at play and with downside potential for the currency.
 
US President Donald Trump is likely to ride the trade war wave for quite a while longer with elections coming up. And although there might have been a softening stance towards China, Trump opted to make threats to India as he travelled to the G20 summit.

Should the US Fed prove to be any less dovish than expected, the rand could react negatively.

Another risk for the rand is that several state-owned enterprises (SOEs) remain highly indebted and any plan to take Eskom, SAA or SABC debt onto the fiscal balance sheet would add extra pressure to a constrained budget.

"Moody's has been extremely kind to South Africa, however fundamentally nothing has changed in this country – we still suffer from high unemployment and exceptionally low (or no) economic growth," said Botes.

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