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The rand opened at R12.41/$ on Friday morning, following gains made along with other emerging market currencies against the US dollar on Thursday.
By 12:47 the local currency was trading 0.44% weaker at R12.47 to the greenback, after earlier breaching the R12.50/$-level to trade at R12.51.
According to a market update from NKC Economics, the rand had been stronger during Asian trade early in the morning, and is expected to trade within the range of R12.30/$ and R12.55/$, while ratings agency S&P is expected to give its ratings decision on Friday night.RMB economists Isaah Mhlanga and Elena Ilkova explained in a market report that US policy shifts had been inducing volatility across global markets.
"Tensions on the geopolitical front in the Korean peninsula and talk of a trade war seem to be back on the table, as US President Donald Trump cancels his long-awaited summit with the leader of North Korea, citing anger and open hostility from his counterpart," the report read.
These volatile policy moves are happening while the Federal Reserve Bank is in a hiking cycle, magnifying the impact on emerging markets, they explained.
Meanwhile on the local front, the Reserve Bank’s Monetary Policy Committee unanimously decided to keep rates at 6.5% on Thursday. The rand strengthened slightly from R12.42/$ to R12.39/$ following the decision.
The MPC is expected to implement four hikes by the end of 2020, Mhlanga and Ilkova said.
S&P decision
Mhlanga and Ilkova expect that S&P will keep the BB long-term foreign-currency rating and the BB+ long-term local-currency rating on stable outlook.
"Economic prospects, the main reason for the downgrade on 24 November 2017, have improved. However, despite S&P’s real GDP growth forecast for 2018 doubling to 2%, the fiscal position is yet to strengthen significantly and structural reforms are only just starting," they pointed out. For this reason, a ratings upgrade or a change in the outlook is not expected.
Ratings agency Fitch is also expected to announce the outcomes of its review on Friday. "There are no changes expected to either the BB+ long-term foreign and local currency ratings or the stable outlook."
Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions, also shared views that SA would remain at junk status. However, Botes believes the outlook would be adjusted from negative to stable, and this is already priced into the currency level.
Treasury Specialist at Umkhulu Consulting Adam Phillips also shared views that S&P would not change the rating but could possibly improve the outlook. "Ramaphosa has been saying the right things again this week, and maybe news that he will donate half his salary will start a new trend. His stance on corruption will be noted by the rating agencies.
"Therefore, I think we have to expect some (rand) movement should a change occur."
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