Rand gets much-needed impetus from Ramaphosa’s cautious move to re-ignite economy

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LONDON – Credit needs to be awarded where credit is due and South Africa deserves in many aspects. The gradual reopening of the economy shows that there is a plan, a potential strategy on how to get away from this unprecedented moment in history and even a map on how to slowly bring some forms of normality back into the lives to South Africans.

There are at least two different elements for where investors can look upon South Africa in a positive light. One of them is that it actually has a plan to loosen restrictions and many others do not, this is clear around the world.

Secondly and this is the most important reason of them all is because South Africa managed to react relatively early to all of this compared to peers in far more advanced places, and this has helped prevent an extended outbreak and this point and even more importantly preserved human lives.

One should not expect this map to be the holy grail and save the economy from distress, but it brings hope and some light at the end of the tunnel when it comes to restrictions.

On an economic front, there isn’t a bottle that can be rubbed to take all of the pain away and the warnings coming through from leading institutions that the economic damage worldwide will be to levels that have not been seen in one hundred years is jaw-dropping.

Even outside of South Africa, in 4/5 weeks the US economy has lost all of the jobs it has created in 12 years – since the global financial crisis. And PMIs, a reflection of economic activity in UK/Europe are coming in at numbers below 20. That isn’t just economic contraction, (50) this is a train wrest of economic distress and South Africa as an open-economic has to be very switched on and alert to global demand.

It is because of the above, and the unknowns that remain worldwide over the pandemic that I still maintain the same view that dollar/rand will approach 20. This means that there can be more market fallout.

However, and on the positive sign of things prospective investors having an idea on when South African businesses and corporations can resume a level of productivity to what we knew life to be just less than two months ago can help bring investments into South Africa.

The rand is marginally stronger at time of writing against the dollar and although this can suggest from one perspective that investors are not buying into the rand on the government announcements, a broader-based view shows that the rand has performed much stronger today than many of its global counterparts against the dollar.

This is evident against the lira and even more specifically throughout Asia where the Thai baht, Malaysian ringgit, Chinese yuan, Indian rupee, Philippine peso are all lower against the dollar. The same is also true against the euro, pound and Australian dollar, which have all showed weakness in value against the dollar.

In comparison to these currencies, the rand has bucked the trend of dollar strength today.

And we must also not forget when taking into account the projections of the rand and where it is heading is that the dollar remains historically very strong against a basket of world currencies

Jameel Ahmad is global head of Currency Strategy and Market Research at FXTM.


By Jameel Ahmad

Credit: www.iol.co.za

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