Rand edges higher in subdued trade

The rand edged higher on Friday in subdued trade, with the currency’s rally this week slowed by the resumption of nationwide power cuts and more evidence that the domestic economy remains under pressure.

At 0630 GMT the rand was 0.2% firmer at R17.38 per dollar, not far off a close of R17.40 on Thursday.

On Thursday, state power utility Eskom implemented nationwide rolling electricity blackouts, cutting up to 2,000 MW from the national grid. The company said the power cuts, or load shedding, would continue on Friday.

Data on Thursday showed South Africa’s mining output fell 28.2% year-on-year in June.

With the economy already in recession before the coronavirus lockdown, and set for a deep contraction for the whole of 2020, demand for the rand and domestic bonds has largely been supported by the high yield on offer due to high interest rates.

The central bank has however cut rates by 300 basis points this year.

The cuts are in-line with other emerging markets, but the weak economic outlook leaves the rand open to large reversals driven by global events, especially the tensions between China and the United States.

“Consolidation within the recent range may thus be the order of the day for the USD-ZAR, barring any shock data prints today,” economists at ETM Analytics said in a note.

“Further out, the rand remains poised for a cyclical recovery in the months ahead, although longer-term prospects are bearish unless the government is able to garner the political will to implement significant fiscal reforms,” they said.

Source: moneyweb.co.za