Rand and local bonds hold up before medium-term budget
RMB analyst Nema Ramkhelawan-Bhana says disagreeable remarks about SOEs and potential funding mechanisms may send the local currency weaker
The rand and local bonds held steady at reasonably strong levels on Wednesday morning, signalling a degree of market optimism that new finance minister Tito Mboweni will say what the market wants to hear when he presents his medium-term budget policy statement (MTBPS) in the afternoon.
Mboweni will have the unenviable task of reassuring the ratings agencies and the markets that the country has a good handle of its finances, namely keeping the budget deficit within reasonable limits and sticking to the spending limit.
Rand Merchant Bank analyst Nema Ramkhelawan-Bhana said the rand could rally through R14.20 to the dollar, pulling local bonds along with it, if the budget hits the right notes.
“But, the devil is obviously in the detail and any indication of a wider than 4% deficit or disagreeable remarks on SOEs [state-owned enterprises] and potential funding mechanisms could lead the rand in the opposite direction.”
The rand and local bonds were little shaken by the bout of volatility, which sent the JSE all share to a 15-month low on Tuesday.
The euro suffered a collateral damage as the budget standoff between Italy and EU continued while the pound reeled from uncertainty over Brexit. This left the dollar relatively stronger on global markets.
The rand and local bonds tend to swing fairly wildly during risk-off trade because they are part of emerging markets, which investors perceive to be risky.
At 9.35am the rand was at R14.2430 to the dollar from R14.2585, at R16.2969 to the euro from R16.3567 and at R18.4470 to the pound from R18.5091. The euro was at $1.1443 from $1.1471.
The yield on the benchmark R186 bond was at 9.11%, its lowest level since the start of the month, from 9.155% on Tuesday.