Having weakened in recent weeks on highly publicised exchange rate fixing allegations between various South African and international banks the Rand has defied the odds hitting a 2 ½ year high against the pound. An impressive budget by Finance Minister Pravin Gordhan helped restore confidence in the country’s troubled economy as Pravin sought to make plans to battle a huge budget deficit. A new higher rate of income tax at 45% will help plug some large holes in the country’s finances and helped the Rand to make these big gains.
The ZAR also had a boost from the US Federal Reserve Meeting Minutes on Wednesday which saw a weaker dollar make holding gold more attractive. Gold is a key commodity and export for South Africa and when the price of gold rises the Rand often does too. Only 3 weeks ago selling 2m ZAR would have got you £7953 less pounds than it would today.
The Rand is a very unpredictable currency and further deteriorations in the economy and politics could easily destabilise these multi year highs. Expectations for further improvements against sterling would I believe hinge more on sterling weakness than Rand strength which is of course possible in the coming weeks but wouldn’t be a guarantee.
Despite Pravin’s budget helping to focus more immediate short term concerns over the government’s budget deficit even he acknowledged the longer term challenges. South Africa is Africa’s most advanced economy but expanded at just 0.5% in 2016 and whilst commodity prices are expected to recover longer term to help support growth, Pravin also highlighted the external risks of Brexit and the Trump administration which may dent global growth and hurt South Africa’s export driven economy.
The Rand could well make some limited gains against Sterling but if selling Rand for Pounds I would be extremely tempted to lock in these gains. In a notoriously volatile political environment the Rand always remains at the mercy of unexpected political, social and economic strife in South Africa. The budget is welcome but I feel it will turn out to be more of a stop gap to recent volatility rather than a reflection of a true turning point for some deep rooted and complicated issues.
If you are looking to sell the Rand for Pounds I would look at this opportunity and keep in close contact with your broker to monitor any developments. Call today on 01494 725 353 to learn more about the events that could shape GBP/ZAR in the near future.
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