Rand continues GDP-induced losing streak

The rand continued its losing streak on Wednesday, trading above R12.80 to the US dollar following disappointing local GDP data.

The local unit took a hit from worse-than-expected GDP numbers, placing it among the top three worst-performing emerging market currencies against the dollar, after the Mexican peso and Brazilian real, which lost 1.9% and 1.7% respectively on Tuesday.

By 10:01 the rand was trading 0.22% weaker than its previous close at R12.80/$, after hitting R12.83 to the greenback earlier in the session.

The rand had opened at R12.55/$ on Tuesday morning before the release of the GDP data, which also dragged the JSE lower.  

"The move in the rand coupled with a late afternoon rally in the US dollar [on Tuesday] caused the rand to break through the R12.80-level, and it seemed that the local unit was heading for R13.00 somewhere in this week," commented TreasuryOne dealer Andre Botha.

Bianca Botes, Corporate Treasury Manager at Peregrine Treasury Solutions, said the rand would remain under pressure following a break above the key level of R12.73/$. "However, any ZAR-positive data coupled with sufficient momentum could see it edge stronger, back to the R12.50 to R12.70 range of recent weeks," she said.

For now, traders expect the rand to trade between R12.65/$  and R12.85/$.

Poor showing 

StatsSA announced on Tuesday that South Africa's first quarter GDP contracted significantly by 2.2% at a quarter-on-quarter basis. This compared to an increase of 3.1% during the last quarter of 2017.

"The disappointing growth outcome in Q1 followed three consecutive quarters of positive growth and was an outcome notably lower than market expectations (-0.5%)," commented NKC Africa Economics in a morning note.  

The disappointing growth outcome signalled that the economy had lost momentum, ironically at a time when confidence levels had improved and there was renewed hope that the South African economy could be steered on a better path under new president Cyril Ramaphosa, added NKC.

"In our view, Ramaphosa has done well on many fronts in his first few months as president. However, momentum needs to be maintained and more needs to be done, particularly addressing uncertainties around the land reform debate as well as the pending Mining Charter, both of which are keeping investment hostile at this stage.

"Despite a hesitant start to 2018, we still believe that improved confidence levels will foster renewed investment interest in the South African economy and should, in time, lift economic growth more meaningfully, while a synchronised global economic recovery should also remain supportive," said NKC.

RMB economist Mpho Tsebe said that the Brazilian real came under pressure despite the country's central bank intervention to support the currency. The real has weakened on concerns over whether the government will stick to pro-market policies ahead of the upcoming elections in October.

In turn, the peso depreciated after Mexico announced retaliatory measures against US President Donald Trump’s steel and aluminium tariffs.

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