• Not for nothing is the ZAR referred to as the “Rattler”.
• Just when it looks dead, buried and without a skin to shed, the viper comes barging out from the bushes, snapping at everything in its path.
• At the end of May this year the rand was flirting with 20 to the USD, 25 to the Pound and 21 to the EURO (give or take).
• At the time it was all bad news…weapons loaded onto ships, Putin was our bestie, we were telling the USA to take AGOA and stick it where there ain't no light, and the electricity was off more often than Harry Maguire gives away a goal.
• A short two months later the Rand is one of the world’s best performing currencies trading at around 17.54 (at time of writing) against the greenback, with even better gains seen against the Pound and Euro.
• Which has left more than a few people scratching their foreheads, asking why ????
• To be fair, and in hindsight, there are a few reasons…
o Putin is no longer invited to come and enjoy our Chenin Blanc, helping our Government avoid a very difficult diplomatic hot pot, and apparently a nuclear war if our President is to believed.
o I can only imagine constable Koos Van Tonder’s conversation on the radio to his Station Commander.
“Captain, Vis ou from Rusland don’t want to get into the bakkie. I have chuned him that he is under arrest, but another ou called Boris keeps waving a 9 mil under my nose talking some strange taal. It sounds a lot like he is very cross. In fact he is not cross he is bliksems furious” (for my foreign readers please excuse the colloquial language)
• Anyway, Koos doesn’t have that problem anymore.
o Another reason for recent Rand strength is the fact that Europe’s economic fortunes are looking less than stellar, taking some pressure of their Central Banks to keep hiking rates.
o And then we have China that is also facing major headwinds for their GDP and are thus providing enormous stimulus to the financial system which allows EM currencies like the ZAR to benefit from a yield perspective, but also from a resource export perspective if the Chinese do in fact manage to reignite their economy.
• All that is needed for further strength in the Rand is confirmation that the USA is close to the top of their own hiking cycle and then SA yields become very attractive, even if our own fiscal risks continue to rise.
• I have to say that at these levels it does seem as if the market has now priced out all of South Africa’s idiosyncratic risks, of which there are more than a few.
• Load shedding is still an issue, however this risk is slowly reducing as more and more private investment goes into renewable energy.
• What we really need here in SA is some economic growth…and that is where my major concern lies. Without growth our fiscal situation keeps deteriorating, which means that when the macro environment turns negative, as it certainly will, then punters will begin to price in this risk again.
• For now though it’s a very welcome relief seeing the rattler show its fangs.