Rand stability undermined by numerous factors

THE RAND depreciated last week to its lowest level since May 2020, during the Covid-19 lockdown, when the currency reached R18.57 to the dollar.

However, on Friday, the dollar traded on R18.24 to the dollar at one stage. The local currency is about 32 cents weaker since the President’s State of the Nation Address (Sona) on February 10.

The rand, however, improved against the pound and traded 7c stronger over the same period to R21.67 on Friday. Against the euro, the rand lost 16c over the past seven days and traded on Friday at R19.23.

The dollar continues to gain ground against the pound and the euro.

The dollar has strengthened strongly over the past few months as the US Federal Reserve hiked interest rates at each of its meetings.

The US inflation rate remains at 6.4% and US jobs data indicates that wages continue to rise and the US unemployment rate is now the lowest since 1969.

The US dollar index that measures the currency against a basket of other currencies has risen already by 17% since the beginning of the year.

Against this stronger dollar, the rand only depreciated by R1.02 to the dollar, or 7.3% over the same time.

Therefore, relative to other currencies, the rand performed strongly. Once again it is wrong to assume that the geopolitical situation as well as load shedding are the main reasons for the weaker rand.

On the JSE, stocks continued to move stronger. The JSE all share index traded above the 80 000 point level again last Thursday and at one stage tested the 80 400 point mark, the highest level over the last year.

For the week, the index has improved by 0.4% and is 8.52% up for the year to date.

Resources again are moving sideways, gaining a mere 0.34% since the beginning of the year, and lost 4.3% over the past seven days as the prices of metals, especially gold and platinum, came under pressure. The price of gold lost 1.2% last week.

Given the weaker-than-expected retail numbers for January (-0.6%), as well as the remarks by the Monetary Policy Committee of the SA Reserve Bank that the South African economy would barely grow this year (0.3%), industrial and financial shares were subdued.

The Industrial 25 index was down by 1.6% since the Sona, while financial shares remained flat last week after they rocketed since the beginning of the year, gaining 16.47%. Financials are more in demand given the current higher interest rates and expectations for further hikes in the repo rate at the next two meetings of the MPC.

The dollar strength in reaction to higher inflation in January than was expected (6.4% against 6.2%), is not so good for US stocks, bonds, real estate and cryptocurrencies.

The S&P500 index, however, has improved by 6.4% since the beginning of the year, but is moving currently sideways to lower in anticipation of the Fed’s next step and the release of its minutes of the last meeting this coming week.

Investors and analysts will this week look foward to the National Budget presentation on Wednesday.

Among top questions around the Budget are what the growth expectation of government for 2023 is, what will be the deficit to gross domestic product and what are the plans for Eskom and other state-owned enterprises.

Will the government subsidise a part of the increase of the 18.7% rise in electricity prices and will it borrow money for that? What is going to happen with the fuel levy and civil servants’ salaries?