President Cyril Ramaphosa’s efforts to distance South Africa from a perceived alignment with Russia are paying off as attention shifts to global markets and away from shedding burdens and other domestic crises that shape the direction of the fringe.
After weeks of uncertainty over the grid collapse and concerns that South Africa’s ties to Russia could provoke Western sanctions, investors and world markets have finally eased the beating of the rand.
The rand was pushed up to R19.92 per dollar in recent weeks as concerns over sanctions – however unlikely – resonated in local markets. This risk became more prevalent as South Africa was thought to be joining Russia in its ongoing war in Ukraine, despite claiming to be neutral.
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Pressure on local unity also stemmed from questions about whether Russian President Vladimir Putin would personally attend a BRICS summit scheduled for August in South Africa.
The International Criminal Court has issued an arrest warrant against Putin for alleged war crimes, and South Africa, as a party to the court, would be obliged to carry it out.
However, these concerns have cooled down – for now – and Putin is reportedly likely to skip the summit. At the same time, South Africa, through Ramaphosa, has taken a more forceful stance, calling for an end to the war and settling in a position of neutrality.
This allowed the rand to settle below R19 against the dollar, with the unit currently trading at R18.50 against the dollar.
At one point, the rand was eyeing a move towards R18 against the dollar, but has since pulled back and lost some ground.
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According to Annabel Bishop, Investec’s chief economist, while the rand is not particularly strong — and has not yet recovered to early-year levels — it is at least currently being driven by movements in global markets rather than the crises in their own country.
“The rand is likely to remain volatile, impacted by global events that are currently stronger as lower tax phases and President Ramaphosa’s recent efforts to strike a more neutral balance in global geopolitics have been overshadowed,” she said.
The global factors driving a weaker edge are risk averse sentiment affecting volatile emerging markets such as South Africa.
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Bishop noted that markets are jittery over veiled reports from the US, particularly about the Fed’s intentions to continue raising interest rates. Meanwhile, the geopolitical risks of the Russia-Ukraine conflict remain and concerns and uncertainty about the possibility of a recession remain.
“Markets have reassessed the juxtaposition between additional rate hikes and a slowing economy, despite some more optimistic forecasts, and increased uncertainty has also contributed to a more risky environment,” she said.
Since rand is both an emerging market and a commodity currency, it is negatively affected by rising rates
uncertainty in global financial markets, Bishop said, which in turn tends to result in a strong US dollar on an appeal to safe haven investment.
However, local issues are not entirely absent towards the market.
There are concerns that South Africa will continue to experience a weak economic growth year – if not a recession – and that not enough has changed to shift investor sentiment in local markets, Bishop said.
Markets are also concerned about increased government appetite for nationalization in health care and expropriation without compensation, reducing foreign appetite for investment in stocks and bonds, concerns about the health of future state finances and economic growth, ” she said.
Despite the more positive direction for the rand, Investec’s baseline for the currency is that it will hold back in the near term and is likely to average above R18 per dollar for the year.
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