Swissquote Bank Research Team
Swissquote Bank Ltd
The South African rand remains under heavy pressures, as investors are worried. Today’s budget announcement will be closely watched. Among the three major rating agencies, only Moody’s maintains the investment grade rating to government debt. Both S&P and Fitch downgraded to junk in 2018 due to political turmoil and poor mid-term budget report in 2017. Still, restructuring of the indebted energy department could help, if constructive solutions are put forward. General elections 8 May remain a big unknown. President Cyril Ramaphosa barely has had time to make his mark, and his support within the parliament and the African National Congress party remain thin.
According to the South African Reserve Bank (SARB), no interest rate cuts are likely. Following the first rate hike in more than two years of November 2018, SARB is not ready for further tightening. The economy is expected to have expanded less than 1% in 2018 (estimated at 0.70%) while annual inflation figures, given at 4% in January (prior: 4.30%) and lowest for 11 months, suggest a moderation due to weakening oil prices and a stronger rand. Risks of a sharp drop in private consumption and weakening economic sentiment are rising. We favour long USD/ZAR positions. Currently trading at 14.1020, USD/ZAR is heading along 14.1450 short-term.
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This report has been prepared by Swissquote Bank Ltd and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Swissquote Bank Ltd personnel at any given time. Swissquote Bank Ltd is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.
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