THE RAND exchange rate continued to strengthen last week despite local political and economic uncertainties.
On Friday afternoon, the currency traded at R15.32 to the dollar. This was 27 cents, or 1.7 percent, stronger than the previous Friday and almost at the same level as a year ago. It was more than 360c better than the R18.98 at the beginning of the lockdown in March.
The rand seemed to ignore the fears of a further downgrade of South Africa’s credit rating by S&P Global Ratings and the more hawkish stance of the South African Reserve Bank’s Monetary Policy Committee (MPC).
The MPC, as was the case after their previous meeting, announced at a press conference on Thursday that the repo rate was likely to increase twice during the latter part of next year.
The MPC still believed that “additional exchange rate pressures could result from heightened fiscal risks”, that government would not be able to stop the debt trap in its Budget and new economic plan within the next year, and that the rand would come under severe pressure.
Therefore, the strong movement in the currency after the MPC’s statement came as a surprise to many.
Bond rates also seemed to ignore these fears, as the yield on the R187 government bond gained almost 1 percent last week, trading stronger than 7 percent (6.95 percent).
The strong increase in the platinum price by more than $60 last week was some indication that the expected economic recovery, particularly in China, may boost capital flows to emerging currencies.
Global equity prices continued their positive movements despite the second wave attack of Covid-19 that threatens economies in Europe and the US with more lockdowns.
The news that Pfizer and BioNTech plan to allow their Covid-19 vaccine to be used in the US next monthin December kept markets positive. Fears of renewed obstacles between the EU and the UK on a Brexit deal, as well as a boiling conflict between the White House and the US Federal Reserve over the proposed emergency lending programme had led to shares trading in a mixed fashion last week.
Equity prices on Wall Street came under pressure on Friday but still managed to remain in positive territory for the week. US Treasury Secretary Steven Mnuchin’s announcement that the Fed’s emergency lending programmes would expire by the end of the year caught markets off guard.
Domestically, the Zuma, Zondo saga, tension in the ranks of the ANC due to the court appearance of ANC secretary-general Ace Magashule and the MPC’s warning of interest rate increases in the second half of next year had a negative impact on share prices on the JSE.
The FTSE/JSE All Share Index lost 567 points (1 percent) last week and once again traded lower than its level at the beginning of the year.
Industrials were 1.5 percent lower, resources traded down 0.1 percent, and financials gave up 2 percent. The black sheep among investors – listed property – continued its winning streak, gaining another 2.6 percent. The index is now 14 percent higher than it was at the end of the last month.
Dr Chris Harmse is an economist at CH Economics