ZAR Forex Report – The game is roulette, and the wager is the SA economy

The Rand started last week positively, rather it continued its strong trend: 20 month highs were hit mid-week as the ZAR benefited from a narrow current account deficit and lower inflation.

The Rand strengthened to 12.52 against the USD, 13.42 against the Euro and 15.45 against Pound Sterling as SA Reserve Bank data showed that the current account deficit narrowed to 1.7% of GDP in 4^th quarter, from 3.8% in the 3^rd quarter while headline inflation for February was down to 6.3% y/y from 6.6% in January.

While it could be argued that the Rand gains were over extended and a reversal was possible, the big question mark hung over the US healthcare reform. While it was expected that Trump’s health bill would pass the House Republicans, the opposite was true.

The market responded fairly negatively; it feared that Trumpflation trades were overdone however it had little impact on risky assets and the Rand kept strengthening.

Sadly, all the gains and work the ZAR has put in is unravelling – it has already lost over 5% since yesterday’s high.

The reason why Minister Gordhan and Deputy Minister Jonas were asked to return to South Africa from an investor road show remains unclear – and herein lies the problem, the uncertainty.

At this stage we can only guess why PG has been asked to return – there is speculation that Minister Gordhan will be replaced as Finance Minister so that the court case over Gupta-linked company bank accounts can be thrown out. Remember that Treasury is also the only force standing in the way of Zuma and a full state capture…

An item on the Bloomberg data feed this morning showed that President Zuma told senior leaders of the South African Communist Party that he plans to fire Finance Minister Pravin Gordhan. Following this news, the Rand weakened as much as 3% to over 13 against the USD.

South Africa. Always on a knife’s edge.

While it is hard to focus on other news; keep an eye on out the UK triggering article 50 tomorrow followed by the SA Reserve Bank rate decision on Thursday as well as Euro inflation and US income & spending.

Have a great week and let us all hope that sanity prevails.

ZAR FOREX RATES

 USDZAR  =  12.9091

GBPZAR  =  16.2558

EURZAR  =  14.0208

AUDZAR  =  9.81735

NZDZAR  =  9.06320

CADZAR  =  9.63160

CHFZAR  =  13.0929