Growth will gain traction — analyst

The rand continues to endure adverse economic data as it consolidates ahead of possible further gains, based on a more optimistic assessment of economic growth later in 2017.

The rand continues to endure adverse economic data as it consolidates ahead of possible further gains, based on a more optimistic assessment of economic growth later in 2017.

The rand showed little reaction to weak manufacturing and retail growth data last week, with better-than-expected mining data on Thursday providing support despite a firmer dollar.

Data suggest that SA’s economy has had a weak start to 2017. “Even so, we expect that growth will gain traction later this year and that the economy will weather the recent political storm,” said Capital Economics economist John Ashbourne.

On Wednesday, the rand gained 2.64% against the dollar, to R13.4598, its best intraday move in 2017. Its previous best was on March 15, when it firmed 2.61% from R13.50 to the dollar to R12.80 to the dollar.

Rand bulls say fundamental factors support the rand, with the currency clearly oversold at R14 to the dollar following S&P Global and Fitch’s downgrades earlier in April.

On Thursday, Finance Minister Malusi Gigaba reaffirmed that the government’s fiscalconsolidation plans would not change. He said the aim was to stabilise the government’s net debt over the next three years at 50% of GDP.

“To accomplish this, we are tightly controlling expenditure, with budget deficits narrowing from 3.4% of GDP last year to 3.1% in 2017-18 and narrowing to 2.6% in 2019-20.”

However, Nomura analyst Peter Attard Montalto said the rand should be trading at R15.50 to the dollar. He ascribed the present strength to the carry trade, in which investors buy currencies such as the rand to benefit from higher interest rates. He said the market was pricing out the risk of a hard landing in China, as well as fiscal challenges in the US. Should these events happen, the rand would weaken.

“But it would likely be a slow path with limited risks of a disorderly overshooting,” he said.