Currency outlook for the week ahead and foreign portfolio flows:
The rand recovered at the start of the week to R13.73/USD from a closing level of R14.12/USD on Friday. The local currency credit rating downgrade by S&P and the downgrade warning from Moody’s occurred after hours on Friday, with the rand weakening by over 1%. However, thin liquidity conditions over the weekend likely exacerbated the move, with the rand returning to levels on Monday that were seen just prior to the downgrade. The market response is relatively contained as SA still remains in the World Government Bond Index. Exclusion from the index would be triggered if Moody’s were to also downgrade SA’s local currency rating by one notch to sub-investment grade. In the event, forced selling of local bonds have been estimated at R100bn – R180bn. The rand remains vulnerable ahead of the ANC elective conference in December, the outcome of which will likely inform the 2018 Budget which in turn will be a contributing factor to SA’s next credit rating assessments by the rating agencies.
In the week ahead, the rand is expected to trade in a range of R13.25/USD – 14.25/USD, R15.90/EUR - R16.90/EUR and R17.80/GBP - R18.80/GBP.