Global Courant
Sentiment towards South Africa is slowly shifting, with markets embracing talks between the government and business leaders to tackle the energy, logistics and crime crises – as the state gives some substance to its claims of neutrality towards Russia.
According to Investec chief economists Annabel Bishop, these developments — along with better prospects for tax shedding — have led the rand to recoup some of its losses in recent weeks.
The unit was trading at R18.55 per dollar on Monday (June 12), a much better position than the all-time high of R19.91 it hit in recent weeks.
It is acting at its highest level since mid-May 2023, before the US embassy’s allegations that South Africa supplied arms to Russia.
“The rand has strengthened as the South African government tries to temper its relationship with Russia, to strike a neutral balance,” she said.
“In addition, the state has been proactively working to solve the electricity crisis, while the major corporations and the presidency have launched a partnership initiative to remove obstacles to inclusive economic growth and job creation.”
In addition to local developments, markets also welcomed the likely pause, if not the end, of the cycle of US rate hikes this week.
“The market is not pricing in a full 25 basis point rate hike for any of the next three FOMC meetings on June 14, July 26 and September 20,” Bishop said. “From November, market expectations for the US will reverse as interest rate cuts are expected.”
With a two- to three-quarter lag between a change in US interest rates and the impact on the economy, the US is largely expected to pause the cycle of rate hikes, helping the rand, which has been suffering from the continued erosion of the interest rate differential, get a helping hand, Bishop said.
The good news could also continue.
“The Rand was heavily oversold in May, and the June recovery could provide momentum towards R18.00/USD, while interest rate cuts in the US are likely to further strengthen it, and indeed the anticipation of these cuts ahead of time,” said Bishop . .
So the playing field is set for a stronger edge if the momentum can be carried. This requires Eskom to keep divestment at bay so that the government keeps Russia – and the threat of secondary sanctions – at bay while it works on necessary reforms in crisis-hit sectors.
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