Mini budget expected to support the rand - RMB

2016-10-26 13:17 - Carin Smith
(iStock) ~ iStock

Cape Town - RMB expects the mini budget to be rand supportive, it said on Wednesday morning.

RMB pointed out that rand gains have resumed helped by a favourable global environment, but risk is becoming overextended.

The rand opened at R13.77 to the dollar on Wednesday, just short of what RMB calls the key support line at R13.73 to R13.75. The local unit was at R16.76 to the pound - the lowest since 2013 - while testing the R15 level against the euro.

"Rand gains have resumed. This reflects in part the risk-on tone of global markets that has seen all risk currencies rallying. [It is] Partly reflecting some rand outperformance, which is harder to justify given the lack of any local news," said RMB.

The whole market is waiting in anticipation of what Finance Minister Pravin Gordhan will say in his mini budget speech on Wednesday afternoon, Andre Botha, a dealer at TreasuryOne, said on Wednesday.

He said the rand was "pushing along quite nicely in anticipation of the mini budget speech despite not so stellar performance of the New York stock exchange, which is normally a good indication of risk-on sentiment in the world".
Botha expects the rand to be very choppy and one could see swift moves happen as what he calls "the red zone" of 14:00 is entered - in other words, when Gordhan begins his speech.

"Even before the start of the speech the one huge positive is that Mr Gordhan is still delivering the speech, which in the past few months looked a little bit dicey at some stages," said Botha.

"One can expect the market reaction to be a lot like a child going to its parents with his or her report card. If it’s a good report card, there will be a positive feeling and maybe some reward and if it doesn't look too good, there might be a hiding doing the rounds."

NKC Daily said in its daily economic report on Wednesday that Gordhan is expected to present an austere mini budget, "although economists expect targeted budget deficit (to) widen slightly due to poor economic growth constraining revenues".

At close of local trade on Tuesday, the rand was 0.5% stronger at R13.83/$, after trading in a range of R13.79/$ to R13.94/$. NKC Daily expects the rand range on Wednesday to be between R13.65/$ and R14.00/$.

By 13:00 the rand was trading up 0.28% at R13.79 to the dollar.

Umkhulu said in its market report on Wednesday that with the rand at just below R13.80, SA is right back where it was before the Hawks decided to charge Gordhan.

"From a technical perspective R13.50 to the dollar is possible, as it is a move back to 14.00. It is hard to know what camp to be in given what could come out in the next week," said Umkhulu.

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