South Africa’s rand traded firmer at R15.75 on Monday (23 May) after ratings agency S&P Global upgraded the country’s outlook from ‘neutral’ to ‘positive’ while keeping both the local and foreign currency ratings unchanged, says financial services firm TreasuryOne.
The ratings agency cited South Africa’s positive terms of trade as well as fiscal discipline as reasons for the change in outlook.
“The rand is further being supported by a slightly softer dollar and firmer commodity prices this morning. A (sustained) break below R15.75 is needed to open up further strength toward R15.50 in the short term,” TreasuryOne said.
“Headwinds for the rand lie in the current precarious state of the electricity supply, the fresh flood damage in KZN, and fears of new lockdowns in Beijing due to rising Covid cases.”
This was echoed by Bianca Botes, director at Citadel Global, who noted that the dollar is trading lower this morning as investors appear to be betting against further dollar gains.
“Economic uncertainty remains the focal point for market participants, as central banks wage war on inflation by hiking interest rates,” she said.
Is the dollar done?
Global asset manager Schroders argues that the freezing of Russia’s foreign exchange reserves could be partly responsible for the cooling of the dollar’s dominance as a reserve currency.
Last month the Russian government missed a payment on a Eurobond because financial sanctions meant that it was unable to service its debt. Russia managed to evade a default by making a payment shortly before a 30-day grace period elapsed. It is believed Russia used some of its now limited foreign exchange (FX) reserves to make this payment.
“Whereas Russia started the year with FX reserves sufficient to cover all of its external debt tenfold – both public and private – sanctions imposed by the US and its allies have rendered those assets useless,” said David Rees, senior emerging markets economist at Schroders.
“We recently argued that, outside of a handful of frontier markets, the near term spillover from a Russia default and tighter global financial conditions, in general, are manageable in the rest of the emerging world,” said Rees.
Banks send price hike warning to South Africa
Source: Business Tech
