Rand targets below R12 against the dollar

The rand targeted a push below R12 against the dollar on Wednesday as the JSE’s all share index reached a new high, while investors wait for additional clues from Cyril Ramaphosa on how he plans to rejuvenate the economy and when President Jacob Zuma might step down.

Ramaphosa, the recently elected ANC president, is leading a delegation to Davos, in Switzerland, to try and turn negative sentiment around South Africa into a positive story that the country’s fortunes are shifting, the politics is stabilising, and that the country is on a fresh growth trajectory.

The all share index reached an intraday peak of 61,621 points on Tuesday, before closing 0.68% higher at 61,475 points.

The rand meanwhile continued to trade at levels it last reached in May 2015.

  • Dollar/Rand: R12.02 -0.01%
  • Pound/Rand: R16.89 -0.22%
  • Euro/Rand: R14.82 -1.47%

“The lower fuel price feeds into lower inflation and of course, goods that we import will be cheaper because the rand is and this would mean that we will not need to hike interest rates this year,” Investec economist Annabell Bishop told eNCA.

Bishop said in a note at the start of the week that the rand could strengthen to as much as R11 to the dollar, should the president be forced to step down.

Further strengthening would also cause fuel price cuts and place downward pressure on inflation, with the possibility of the rand moving towards R10 to the dollar should Ramaphosa continue to make reforms and promote growth, she said.

The decision by the South African Reserve Bank to keep the repo rate steady at 6.75% last week, as well as the expected decrease in both the prices of petrol and diesel will give consumers a welcome break after the body-blows of last year’s string of downgrades and fuel price increases, said Neil Roets, CEO of Debt Rescue.

He said the fuel price decrease was especially welcome with petrol expected to decrease by as much as 41 cents a litre while diesel would probably drop by as much as 26 cents a litre during the first week of February, citing mid-month forecasts.

Zaakirah Ismail, a fixed income strategist at Standard Bank, said the recent steps taken by the ANC regarding president Zuma, the new Eskom governance as well as plans to address land reform, the Mining Charter and higher education, are important signposts in terms of positive policy steps ahead of the Moody’s credit rating and the SA 2018 Budget.

Ismail said the rand remains in the bank’s R12.00 – R12.20 range against the dollar after the positive announcements made by the ANC over the weekend regarding Zuma as well as several measures to strengthen governance at Eskom.

“Our forecasts , before these specific announcements, included an appreciation of the USD/ZAR to around 12.00 in Q1:18 on our expectation of positive policy steps. We maintain our forecasts, although some overshoot is possible if there are further credible political improvements.”

Standard Bank also pointed out that the IMF downgraded South Africa’s growth forecast for 2018 from 1.1% to 0.9%, stating that the below 1% forecast was due to increased political uncertainty which was weighing on confidence and investment.

“However, with the political turnaround and the recent positive policy moves, we forecast growth of 1.5% for 2018,” said Ismail.

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