South Africa's rand clings on to gains ahead of crucial budget speech
JOHANNESBURG - South Africa’s rand inched firmer early on Monday, holding near a 7-week best, as investors looked beyond an uncertain local and global backdrop and kept buying the high-yielding currency.
By 08:50, the rand was 0.08% firmer at 14.6140 against the dollar, a touch off its rally to 14.5700 on Friday, which marked its strongest level since Sept. 14.
Economic fundamentals in Africa’s most industrialised market continue to paint an fragile picture, expected to be highlighted in Wednesday’s medium-term budget, in which the deficit is set widen sharply, owing mainly to bailouts to state firm Eskom.
A poll of 14 economists expects Finance Minister Tito Mboweni to expand the deficit to 6.05% of gross domestic product, up from a projection of 4.5% in February for the year that began in April.
Crisis-hit power company Eskom was handed an additional 59 billion rand ($4 billion) lifeline by parliament on Tuesday, prompting criticism from opposition parties, which described it as a “blank cheque” that would swell borrowing.
But the firm has not cut power to the national grid since last Sunday, when breakdowns at some its coal-fired plants forced it to throttle supply, easing investor concerns and breathing wind into the rand since the beginning of the month.
The unit is close to 6% firmer since Oct. 1, gains matched by a rally in government bonds.
The yield on the benchmark 2026 bond was down 0.25 percentage points to 8.145% in early trade.
“This (rally) could also be linked to structural dollar weakening - factors such as expectations for U.S. rate cuts this week and into 2020,” traders at ETM Analytics said in a note to clients.
“Investors will also be disincentivised to take on big positional bets at present, due to the host of event risks present this week.”