Rand retreats as upcoming GDP data frays investor nerves

The rand traded weaker early on Monday with second quarter economic growth data this week set to show a massive contraction following a strict coronavirus lockdown, keeping investors on the sidelines.

At 0700 GMT the rand was 0.36% weaker at R16.65 per dollar having closed at R16.59 on Friday.

The rand, driven mostly by international factors in recent sessions, gained ground with increased global risk-taking by investors as slack economic data from the United States saw the dollar retreat against most currencies.

But a return of nationwide power cuts last week by state utility Eskom, coupled with signs of tension inside the ruling African National Congress, and fears of deep recession have seen the rand lag gains by its emerging market peers.

Statistics South Africa publishes gross domestic product figures for the three months to June on Tuesday.

Economists polled by Reuters in August lowered their forecasts again, and now expect an annualised 44.5% contraction in the April-June quarter, compared with the median estimate in a July poll for a 38.7% fall.

“The single biggest threat to the ZAR over the longer-term is the state of SA’s fiscal position. It is unsustainable,” said analysts at ETM Analytics in a note, adding that beyond the growth data on Tuesday investors will be eyeing the October budget.

“The GDP figure could well be the worst print in a century and offer insight into a budget deficit that will probably rise to around R700 billion or more.”

Bonds traded weaker as well, with the yield on the benchmark 2030 government issue adding 2 basis points to 9.25%.