Rand consolidates below R14/$ in risk-on trade

News that the US is no longer considering slapping additional import tariffs on Chinese goods this week boosted the rand on Monday afternoon, with the local currency comfortably below the R14/$ handle.

US President Donald Trump tweeted overnight that he would let a March 1 deadline for a trade deal with China pass. Trump will instead seek a meeting with Chinese President Xi Jinping.

At 2pm the rand was 0.77% stronger at R13.8657/$, 0.56% firmer at R15.7574/€ and 0.67% up at R18.145/£. The euro was 0.21% firmer at $1.1364.

The rand continues to find support from last week’s budget policy statement, which was not as negative as the market had feared, analysts said.

A decision not to directly bail out Eskom, and instead offer the embattled power utility bridging loan, in particular is seen as move that may placate Moody’s Investors Services. Moody’s is the only ratings agency that holds SA’s sovereign credit rating at above junk status, and a downgrade would prompt sharp selling of local bonds, and put pressure on the rand.

Moody’s is likely to change SA’s outlook from stable to negative, but should hold off on a downgrade, Investec chief economist Annabel Bishop said.

“Clearly there is some communication from Moody’s that supports that an actual credit-rating downgrade may occur for SA in March, but there is a lot more communication highlighting an escalation in the risk of [a ratings downgrade] instead, which is what a drop in the rating outlook to negative from stable would imply,” said Bishop.

Investec’s baseline case is for the rand to average between R13.90/$ and R14.10/$ in the second and third quarters of 2019, but strengthen to R13.05/$ in the fourth quarter of the year.

Moody’s is set to make its announcement on March 29.

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Source: businesslive.co.za