Rand may retest R11.50/$ on good economic news - analyst

Cape Town - The rand may again test the R11.50 level against the dollar on the back of positive economic developments in SA, including Moody's decision to not cut the rating on the country's sovereign debt.   

"The sentiment in South Africa has lifted markedly in the past four months, and with the latest influx of good news we could see the rand enjoying a favourable run in the short term," TreasuryONE dealer Andre Botha said in a market update on Monday morning.

The local currency was trading at R11.63 to the dollar at 10:26, after briefly touching R11.60 to the greenback, its best level in a month. It opened at R11.67/$. 

The rand almost breached the R11.50/$ in late February, in the wake of the 2018 Budget and President Cyril Ramaphosa's maiden State of the Nation Address.

Botha said that after South Africa's credit rating was not downgraded by Moody's on Friday, market focus would now switch to whether the South African Reserve Bank's monetary policy committee (MPC) will cut benchmark interest rates.  

Time ripe for a rate cut

"With inflation under control and the rand not blowing out as the MPC feared, the time is ripe to cut rates this time around," he said. 

"How many times the MPC will cut remains to be seen, as there is a fine line between South Africa cutting rates and developed markets hiking rates where the rand will start to lose attractiveness in the carry trade game."

The MPC decision is set to be announced on Wednesday. 

The local currency could weaken, depending on how the trade war between the US and China plays out. 

"The villain of the piece at the moment is Donald Trump with talks of 'Trade Wars' intensifying as days go by. Other risk-on measures [include] stock markets being in the red with 'trade war' talk. We can expect this to filter in currency markets sooner rather than later, and we could see emerging market currencies losing some ground as the saga plays out."

The Moody's boost

NKC African Economics said in a statement it expects the rand to trade between R11.55/$ and R11.80/$ on Monday.  

The fact that Moody's did not cut the rating on South Africa's sovereign debt was also a definite boost for the local currency, it said. 

"Maintaining an investment grade rating - in contrast to sub-investment grade ratings from Fitch Ratings and S&P Global Ratings - has given South Africa the necessary reprieve and prevents an exclusion of our bonds from the Citi World Global Bond Index, which would have had a detrimental impact on confidence, capital flows and the performance of the rand," it said. 

Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions, meanwhile suggested a daily trading range of between R11.65/$ and R11.74/$. 

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