South Africa's rand firms as Fed rate cut bets offset budget fears
JOHANNESBURG - South Africa’s rand firmed on Tuesday as bets of rate cut by the U.S. Federal Reserve outweighed fears that the local medium term budget would show wider government deficits and deeper debt.
At 0600 GMT, the rand strengthened 0.14% at 14.5420 per dollar, near the 1-1/2 month best of 14.5150 it touched in the previous session, bringing October gains to nearly 6% in a surprise rally by a currency facing major headwinds.
Finance Minister Tito Mboweni delivers a keenly-awaited medium-term budget speech on Wednesday, which is expected to show a wider budget deficit than the February estimate of 4.5%, as well as higher debt and lower growth projections.
Africa’s most industrialised economy is battling to kick-start growth, with the treasury target of a 1.5% expansion in 2019 unlikely after nationwide power cuts by state utility Eskom dragged the economy into contraction in the first quarter.
However, investors have been happy to keep buying the currency, and local bonds, and pocket the relatively high yield, and they kept doing so on Tuesday, on the likelihood that the U.S. central bank would trim interest rates on Wednesday.
“The MTBPS (budget) may turn out to be a non-event for the FX and bond markets. This is because globally, the focus will likely be on the U.S. Fed’s FOMC meeting,” analysts at Nedbank said in a note.
“Technically, USDZAR support remains between 14.59 and 15.50. A break below 14.59 would test the trendline at 14.40, confirming a short-term reversal for a move to 13.84”
Bonds were also firmer, with the yield on the benchmark paper due in 2026 down 0.5 basis points to 8.17%.