Talking Points
- South African GDP misses estimates, underlining that the economy remains extremely weak.
- But the Rand has risen versus the Dollar, which eased against most major currencies Monday.
- A host of emerging-market currencies also gained versus the Dollar yesterday.
South Africa’s Rand has advanced on the US Dollar, despite a weaker-than-expected rise in South African GDP, as some emerging-market currencies make up lost ground in the wake of a weakening Greenback.
South Africa's economy grew by 0.2% quarter-on-quarter in Q3 2016 after rising by a revised 3.5% in the previous quarter, according to official data from Statistics South Africa Tuesday, suggesting little underlying economic confidence in the country. Analysts had forecast the economy would grow by 0.5%. GDP rose 0.7% year-on-year, which was in line with expectations.
Flagging growth will hinder Finance Minister Pravin Gordhan’s pledge to hit the GDP target of 3.4%expansion this year and narrow the budget deficit to 2.5% of GDP by 2020, pointing to interest rates remaining unchanged rather than rising.
But despite the poor showing, USDZAR dropped to 13.58560 in Tuesday trading, the lowest since November 10, illustrating that movements in USDZAR are more likely to be determined by events in the US than in South Africa. The Dollar, while generally still strong, fell against most major currencies yesterday as fears of the impact of the Italian referendum result receded, helping the Rand and other emerging-market currencies, to make some headway. Turkey’s Lira, China’s Yuan, Mexico’s Peso and Brazil’s Real all strengthened versus the Dollar yesterday.
Another Rand-positive factor is last week’s decision by S&P Global Ratings to affirm South Africa’s BBB- credit rating. That’s the lowest investment-grade level achievable, but some analysts had feared that, against a background of slowing inflation, a weak economy and a turbulent domestic political situation, the country might lose its investment-grade rating altogether.
Chart 1: USD/ZAR 1-hour Timeframe (December 1 to December 6, 2016)
--- Written by Oliver Morrison, Analyst
To contact Oliver, email him at oliver.morrison@ig.com
