ZAR Forex Report
The budget focused on changes to avoid a rating downgrade in December; we saw some tax adjustments and expenditure cuts to deal with the budget shortfall and in an effort to please the ratings agencies.
Last week started with some Rand strength as no local news/drama and favourable global conditions helped risky emerging market currencies.
Impressively, and in a big part due to a very week Pound Stirling, GBPZAR dropped to a two and a half year low below 17.00.
The budget focused on changes to avoid a rating downgrade in December; we saw some tax adjustments and expenditure cuts to deal with the budget shortfall and in an effort to please the ratings agencies.
Diarise December the 2nd when the ratings agencies will decide whether we get downgraded or not as slow growth remains a major concern.
The market was not satisfied with the budget and the Rand drifted to 13.90 versus USD after earlier flirting with 13.70.
As a matter of interest; the credit default swap spread for SA bonds is higher than six countries that are junk status. So many analysts will argue that a downgrade is already priced in.
On Friday global risk assets were under pressure as the FBI reignited its investigation into presidential candidate, Hillary Clinton’s emails.
Surprisingly, the ZAR actually strengthened! It is possible that the market was confident that charges against Pravin Gordhan would be dropped as the Rand closed at 13.74 against USD and 15.10 and 16.77 versus EUR and GBP respectively.
We were expecting a busy week this week and were not disappointed as charges against the Finance Minister were dropped.
The market reacted favourably as one would expect, USDZAR dropping by 2.5% to below 13.50 as investors priced out political risk.
Caution should be taken; especially as yesterday saw the start of Number 1’s court case to stop the release of the Public Protector’s report…in SA, political upsets, like death and taxes, are a certainty.
Global news also helped riskier currencies as both China and Japan’s Purchasing Managers’ Index figures came in strongly, along with good US consumer confidence and spending. ZAR is trading at best yearly levels against EUR, JPY, CNY, and AUD and is close to a 3 year low against a very weak Pound Stirling.
A list of events to look out for this week; SA Purchasing Managers’ Index and unemployment today, along with US PMI. Euro PMI tomorrow and unemployment rate on Thursday, along with the Bank of England interest rate and inflation report.
Also a big one on Friday with the US non-farm payrolls and US employment rate.
US FOMC meeting minutes on Wednesday, SA mining and gold production as well as US Jobless claims on Thursday. On Friday we see Yellen Speak which may increase likelihood of rate rise.
ZAR FOREX RATES
USDZAR = 13.5118
GBPZAR = 16.5450
EURZAR = 14.8619
AUDZAR = 10.3699
NZDZAR = 9.69546
CADZAR = 10.0857
CHFZAR = 13.7110
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