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Cape Town - The rand held firm on Thursday at around R11.90 to the dollar after breaking below the R12/$ mark for the first time since mid-2015 the previous day.
The local currency’s rally was mainly driven by dollar weakness which is now trading at a three-year low, according to US Treasury secretary Steven Mnuchin, who was speaking at the World Economic Forum in Davos on Wednesday.
The day range by 14:45 was between R11.84 and R11.94. By 14:48 the rand was trading 0.3% weaker from its previous overnight close at R11.90 to the greenback.
“There is a saying that goes ‘the trend is your friend’ and for the moment the ZAR (rand) is benefiting from a bearish dollar trend,” TreasuryONE dealer Gerard van der Westhuizen said in a market update.
Adam Phillips, Treasury Specialist at Umkhulu Consulting added that the Eskom inquiry and “renewed” SOE governance may also be a contributing factor to rand strength.
The next key resistance level for the rand is R11.70/$, said Investec Chief Economist Annabel Bishop. She said that there are still risks for rand weakness. Ratings agencies will be observing the budget in February to see efforts of fiscal consolidation and the avoidance of excessive tax hikes that would “strangle” economic growth, explained Bishop.
“Moody’s, the last key agency which has SA on investment grade, is set to deliver a downgrade after the budget if fiscal consolidation is not met, particularly projected reduced expenditure and higher revenue, and lower borrowing projections.
“Sufficient progress on SOE (state-owned enterprise) governance reform is also key, and a faster economic outlook,” she said.
She explained that if South Africa drops down another notch on the ratings, the rand could weaken back towards R13.50/$ or more.
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