Week Ahead: Trade balance expected to reflect sizeable surplus for 2017 with weak domestic demand compressing import growth

25 Jan 2018

Annabel Bishop

Chief Economist

Figure 1: SA Monetary Policy Committee (MPC) meeting dates for 2018

Currency outlook for the week ahead and foreign portfolio flows:

Figure 2: Purchasing price parity value of the rand
The rand advanced against the USD this week, and was the best performer amongst a basket of 24 emerging market currencies. The rand gained 2.8% and pierced the 12.00/USD key resistance level, to trade at 11.85/USD currently.This marks the strongest level since May 2015.
This week the weak US dollar environment boosted the rand, along with other emerging market currencies. The US dollar index declined below 90.00 for the first time since the end of 2014, on US trade policy concerns and US TreasurySecretary Mnuchin’s remarks favouring a weaker US dollar.
The rand also continues to be influenced by domestic developments which this week were perceived as positive and included the announcement of a new Eskom board. In addition, Finance Minister Gigaba and ANC PresidentRamaphosa signaled intentions at the World Economic Forum to adhere to fiscal consolidation in the 2018 Budget.These various developments are seen as contributing factors to averting a credit rating downgrade by Moody’s to noninvestment grade at the end of March.
Indeed, market perception of a lower possibility of a Moody’s downgrade is reflected in the narrowing of SA’s credit default swap (CDS) spread, from close to 200bp prior to the ANC December elective conference to 144bp currently.SA’s current spread is also lower than Turkey’s (164bp). In the lead up to the elective conference, SA’s CDS spread was virtually in line with Turkey’s.
Figure 3: Purchasing price parity value of the rand

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