Rand shows resilience before inaugural National Assembly sitting, hoisted by sound economic data

One key indicator of confidence, or lack thereof, in the South African economy is the rand’s performance, and it has been on a roll this week. 

The currency ended last week on the back foot, flirting with 19.0/dlr, amid an uncertain outlook of the talks to form a government in the wake of the 29 May election which saw the ANC’s haul of the ballots plunge by 17 percentage points to 40%. 

After starting this week at 18.97/dlr, the rand regained lost ground throughout the week and was fetching 18.36/dlr on Thursday afternoon, although later in the day it gave up some gains. It is currently trading at 18.53/dlr.

Having broken through key technical levels, RMB Global Markets Research said in a note that more gains to 18.26/dlr were on the horizon based on what analysts call “momentum signals” in the charts.

“Headlines covering developments around the SA government of national unity (GNU) remain a directional catalyst, and in this regard, the IFP’s commitment to supporting the GNU which included the ANC and the DA provided a supportive undertone,” the note said.

https://www.youtube.com/watch?v=3UFDqS4oU88

The rand has also been underpinned by some refreshing economic data which suggests the economy is at least growing again this quarter after contracting by 0.1% in the first quarter (Q1) of this year.

Manufacturing production leapt by 5.3% year on year in April, Statistics South Africa data showed this week, while mining output rose by 0.7% over the same period in the month after tanking by 4.8% in March.

The outlook for the May data remains clouded, with the Absa Purchasing Managers’ Index (PMI) suggesting a manufacturing slowdown that month.

Still, the absence of nationwide rolling power cuts since late March and tentative signs of improvements on the logistics front have combined with the political outlook to support the rand, which is widely regarded as undervalued at current levels.

The US Federal Open Market Committee (FOMC) once again left its key target interest rate unchanged at 5.25%–5.50% on Wednesday, but this was widely expected. Markets expect the FOMC will start trimming rates only in November and the gap between US and South African rates is priced into the market at the moment.

If the rand were to break below 18.0/dlr, that would probably boost sentiment further as it is regarded as a psychological level. 

For now, the rand is mostly dancing to the tune of domestic politics and all eyes will be on Parliament on Friday. DM