Rand is volatile after Reserve Bank politicking
The rand bucked a trend of firmer emerging-market currencies on Wednesday, weighed down by uncertainty over the Reserve Bank
The rand was weaker on Wednesday afternoon, under pressure from poor economic data and political uncertainty around the Reserve Bank.
Meanwhile, most emerging-market currencies were benefiting from dovish comments from US Federal Reserve chair Jerome Powell on Tuesday night, after he said the world’s most influential bank was willing to cut interest rates to help stimulate a flagging US economy.
The rand, however, extended Tuesday losses. The local currency is on the back foot after SA’s shock GDP print on Tuesday, as well as the announcement from the ANC that it had resolved to change the Reserve Bank’s mandate to include employment and growth, as well as inflation. Finance minister Tito Mboweni, however, has contradicted this.
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The mixed messages come at a bad time for the rand, said Investec chief economist Annabel Bishop in a note, further damaging confidence.
At 2pm, the rand had weakened 0.5% to R14.7353/$, 0.53% to R16.5939/€, and 0.52% to R18.7232/£. The euro was flat at $1.1258.
The rand’s one-week implied volatility has picked up, according to Bloomberg, rising to a one-month high, a level last seen when SA was waiting for the national election results.
Mboweni is likely to be taken more seriously by international investors, said Monex Europe analyst Simon Harvey, although the situation has added a little risk to the mix and undermined investor trust in SA assets.
SA’s poor economic data on Tuesday, as well as concerns around Eskom, remained larger factors, Harvey said. “SA’s GDP data has highlighted the difficulties that President Cyril Ramaphosa faces, [and] the mixed signals around the Reserve Bank aren’t helping.”
Local economic data on Wednesday was also disappointing with both the SA Chamber of Commerce and Industry (Sacci) and IHS Markit purchasing managers’ index (PMI) below expectations. Sacci said confidence dropped to 93 points versus the 94 expected by Bloomberg. The PMI slipped into contractionary territory at 49.3 index points, from 50.3 in April. A reading above 50 indicates expansion.