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Cape Town – The rand firmed almost 1% on Thursday to trade under R12.30/$ for a second time this week, but traders expect it to remain in a narrow band as it eases into the new year.
The local unit, boosted by stronger commodity prices, a weaker dollar and general optimism following Cyril Ramaphosa's election as ANC president, renewed its rally on Thursday morning and by 10:38 was trading 0.7% firmer at R12.28 against the greenback.
On Tuesday the rand traded as low as R12.23 against the US currency.
Adam Phillips, treasury specialist at Umkhulu Consulting, expects the rand to remain within the range of R12.25 and R12.50 against the dollar this week "as traders wait for more news to come as the year kicks off".
He said he has read a report from a foreign bank which feels the currency is probably too strong at 12.30 and that it is overbought.
“In the short term I would not disagree with this and any news from the ANC NEC meeting coming up soon will cause movement,” he said in a market update report.
Data out on Thursday includes the Standard Bank Purchasing Managers' Index (PMI) for December and the US ADP national employment report. However, this data is unlikely to cause “serious shifts”, said Phillips. “The market still lacks the big guns.”
The PMI for December came in at 48.4 on Thursday, signalling a decline in private sector health for the fifth month in a row.
Phillips said the most important data on US non-farm payrolls is expected for release on Friday. “I am a little surprised that the market paid little attention to the Fed’s comments about tax cuts. Maybe the market is playing a 'wait and see' strategy,” he said.
TreasuryOne dealer Phillip Pearce said although firmer, the rand seems to be off to a slow start this year and will remain within range during the first week of 2018.
He sounded a warning on President Jacob Zuma’s free education proposal which has “everyone confused”.
“[It] could cause a lot of issues for universities soon as well as the Treasury as they attempt to find a way to fund it before the Budget Speech at the end of February,” he said.
In November last year the rand weakened to as low as R14.50/$ following rumours of Zuma's free education announcement.
On December 16, the first day of the ANC's national conference, Zuma announced that free higher education will be made available to students from households with a combined annual income of R350 000.
Finance Minister Malusi Gigaba told journalists at the time that details of how government will finance free higher education for poor and middle class students will only be announced at the National Budget in February 2018.
Phillips highlighted Eskom as one of Ramaphosa's biggest headaches going forward.
“Back in SA and the problems at Eskom won't go away and this could be the first issue that Ramaphosa has to deal with.
“Ultimately when he does take over, many current cabinet ministers will feel hot under the collar,” said Phillips.
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