It looks like deja vu for the fast-starting rand

As if January’s potential record gain isn’t enough, the rand may be in for a positive February as well if history is any guide.

Seasonal data show that South Africa’s currency has strengthened against the dollar in February in seven of the past 10 years. Optimism about local political developments and a global risk-on mood spurred the rand to back-to-back monthly gains in January and February last year, and the same factors have already pushed it to its best start since at least 1999 this time round.

Finance Minister Tito Mboweni is scheduled to present the budget on February 20, but few are expecting major changes from the numbers signalled in his mid-term fiscal statement in October. Should the budget outcome meet expectations, that may reduce the chance of Moody’s Investors Service lowering the nation’s credit rating when it reviews its assessment in March.

Still, investors should be mindful of the rand’s volatile nature, said Elna Moolman, a Johannesburg-based economist at Standard Bank. 

“A pragmatic budget that doesn’t trigger negative sovereign credit rating action might be an initial catalyst for some appreciation,” she wrote in a client note. “There is a risk that, like early last year, rand strength will overshoot once optimism about policy and political reform is revived.”