SA assets weak, hit by outlook downgrade

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The rand opened the week on the backfoot against the dollar, hit by Fitch’s outlook downgrade on South Africa announced late in Friday’s trade that said the country was not doing enough to address chronic problems dragging down Africa’s largest economy.

The currency is expected to have a tough week as global risk sentiment deteriorates due to a massive European downgrade also on Friday, and as local data due this week are seen as weak.

The United States market was away for a national holiday yesterday, which should see less liquidity in the market and likely exaggerate rand moves.

The rand was down 0,62% against the dollar to R8,175. It closed Friday at R8,125 in New York, after tumbling to R8,2249 in local trade after Fitch cut South Africa’s rating outlook to negative from stable.

“It’s all about Europe and the downgrades there and what Fitch did with our negative ratings watch. We’re still reeling from Friday,” said David Gracey, a currency trader with Investec.

“I suspect that we’ll see a little bit of exporter activity this morning, which might drive the rand back down to sort of R8,12/13, but I think over the medium term, we can still hit weaker,” Gracey said.

Tradition Analytics said the outlook downgrade was not surprising and much would have already been priced in.

Yields on government bonds were up three basis points each to 6,825% on the 2015 issue and 8,595% on the 2026 bond. The first batch of data on inflation tomorrow, is expected to stay above 6%. The purchasing managers’ index will come out after inflation to give clues about output, then retail sales, which previously came out weaker, will end the day.

Thursday sees the central bank making its first monetary policy announcement for the year. The consensus of 25 economists polled by Reuters is for rates to remain unchanged.