The rand broke below the key psychological mark of R14 to the dollar yesterday to touch R13.96, buoyed by positive sentiment as manufacturing output rose more than expected. Photo: AP Photo/Denis Farrell
The rand broke below the key psychological mark of R14 to the dollar yesterday to touch R13.96, buoyed by positive sentiment as manufacturing output rose more than expected. Photo: AP Photo/Denis Farrell

Rand breaks key R14 level as manufacturing data surprises on the upside

By Siphelele Dludla Time of article published May 12, 2021

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JOHANNESBURG - THE RAND BROKE below the key psychological mark of R14 to the dollar yesterday to touch R13.96, buoyed by positive sentiment as manufacturing output rose more than expected.

This was the second consecutive day this week that the rand dipped below R14 to the greenback, after briefly hitting R13.99 on Monday, driven by the surge in commodity prices.

By 5pm, the rand was bid at R14 against the dollar, 0.01 percent higher from the previous day's fix at the same time.

Citadel Global director Bianca Botes said the rand was testing a sustainable move below R14 to the dollar, boosted by a strong risk appetite, a weaker dollar and robust commodity prices.

“Commodity-driven currencies, such as the rand, continue to enjoy benefits over the dollar, as commodity prices, such as steel, copper and oil, are expected to increase,” Botes said.

Data from Statistics South Africa (StatsSA) yesterday showed that manufacturing production rose 4.6 percent in March from a year before, recovering from an upwardly revised 2.5 percent fall in February.

This was the strongest growth in factory activity since April 2019, well above market expectations of a 0.45 percent increase, as the economy climbs back to pre-pandemic levels. Total manufacturing sales rose by 17.8 percent year-on-year in March and by 5.9 percent from February.

StatsSA director of industry statistics Nicolai Claassen said six of the 10 manufacturing divisions recorded a rise in output, led by the food and beverages, which rose by 10.4 percent.

“This was largely underpinned by the production of beverages, which increased by 35 percent,” Claassen said. “South Africa's automotive division increased output by 25.9 percent year-on-year, making it the second-biggest contributor to overall manufacturing growth in March.”

The Steel and Engineering Industries Federation of Southern Africa (Seifsa) said it was hopeful of a sustained improvement in manufacturing production. Seifsa chief economist Chifipa Mhango, however, said any sustained improvement in the manufacturing sector would depend on the government's efforts to revive the economy.

“When you look at these figures, it can be surmised that there is more room for increased activity and hence production,” Mhango said.

On the downside, the biggest negative contributor was the petroleum, chemical products, rubber and plastic products division, which decreased by 7.1 percent year-on-year. On a month-to-month basis, output increased by 3.4 percent in March compared with February.

FNB economist Thanda Sithole said the data did not change their view of the manufacturing sector's near-to-medium-term economic activity.

Sithole said manufacturing production growth should rebound from lockdown-induced low base effects in 2020, and performance should benefit from easier lockdown restrictions, as well as improving local and external demand.

“We are, however, concerned about the third wave of infections,” Sithole said. “Nonetheless, we do not think that the government will implement stricter lockdown restrictions amid an economy that has just emerged from the deepest contraction since 1920.”

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