Rand weakens sharply on GDP numbers four times worse than expected

The rand was 1% weaker against the dollar on Tuesday afternoon in a sell-off that followed the release of shocking GDP numbers for the first quarter of 2018.

Losses against the pound were even more pronounced, with a softer euro environment failing to cushion the blow for the rand.

The losses were clearly a direct result of the GDP data, as the currency was relatively unchanged leading to the release, said IG SA market analyst Shaun Murison. “Further evidence of this was that other emerging-market currencies, such as the Brazilian real and Argentine peso, traded firmer on the day, while the Russian ruble was flat.”

SA’s economy shrank by 2.2% in the first quarter of 2018 compared with the final quarter of last year, far more than expected — with the surprisingly poor performance due to a plunge in the agricultural sector of 24.7%.

This is the largest quarterly fall since the second quarter of 2009, with economists having expected a contraction of just 0.5%.

At 3.04pm, the rand was at R12.705 to the dollar from R12.5664, R14.8154 to the euro from R14.6949, and R16.9782 to the pound from R16.7296. The euro was at $1.1661 from $1.1695, after reaching $1.17 on Monday.

Local bonds tracked the weaker rand, while global bond yields fell in renewed safe-haven trade. US treasury yields climbed, however, along with stocks as investors’ hopes for a strengthening economy outweighed concerns about possible escalating trade tension, Dow Jones Newswires reported.

The R186 was bid at 8.630% from 8.555% and the R207 at 7.405% from 7.390%.

The US 10-year was at 2.9058% from 2.9442% while the German 10-year bund firmed more than 10% from 0.4118% to 0.373%.

Falls in UK gilt yields were more measured after a top Bank of England official said that interest rates in the UK would need to rise more than once in the next three years to keep inflation in check. This supported the pound.

The UK 10-year gilt was last seen at 1.2922% from 1.2955%.