The rand continues to weaken against the US dollar touching $13.28 on Friday, its lowest level since December 18.
This move is predominately down to weakness in the rand as opposed to US dollar strength. Even though we have had good economic numbers coming from the US recently and a possible rate hike this week, other dollar pairs (EUR, GBP and JPY) did not see moves as severe as the USDZAR.
A drop of 2.2% in GDP in the first quarter compared to the fourth quarter of 2017 as a result of declines across many key sectors of the economy was the start of the downfall.
Ramaphosa, is predicting a 3% growth rate for 2018 which is ambitious considering all the major investment firms around the globe are suggesting that 1.5% is more realistic.
Current growth is coming from the public sector and consumption spend, with net exports and investment spending struggling. If Ramaphosa can focus his efforts on the latter two he may have some chance of getting close to his predicted growth rate for the year.
Investors need more confidence that the changes being implemented will have a real impact on improving the South African economy.
Those same investors also are aware that Ramaphosa and his new team are only in the job 4 months so obviously they need more time to prove they can turn things around.
From a trading perspective , I am cautiously bullish in the short term. We may see a pullback in the price (signalled by the red arrow) before we take off again or a continuation from last week.
On this basis, I would want to see a daily candle close above Friday’s high before jumping in. Also, be cautious of the impact of a US interest rate decision this weak which will impact the pair.
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