Executive Summary

·        The rand was on the back foot for most of last week, despite GDP data surprising on the upside. This came amid fears over a looming trade war, following President Trump’s plan to impose steel and aluminium tariffs. Concerns are that increased trade protection may derail the broad upsurge in global growth.

·        At the same time concerns around land reform also contributed to the negative sentiment for the local currency, despite the positive momentum introduced by the 2018 Budget in late February. The local market is now keenly awaiting the rating review of Moody’s on 23 March 2018.

·        We expect Moody’s to keep South Africa’s local currency rating unchanged (investment grade) with a negative outlook (Baa3 negative outlook). Furthermore, we do not believe that the SARB will change the repo rate this month, but that it would very likely cut the repo rate either in May or July. A ratings reprieve, aided by favourable interest differentials (compared to our emerging market peers) should boost the local unit in the short-term. We would not be surprised to see the rand rally closer to R11.65.

·        Our six-month and 12-month target range for the USDZAR remains unchanged at R12.40 and R13.00 respectively. We believe global factors will be the key driver of the currency this year.

·        Short term, keep an eye on support at R11.70 and resistance at R12.06 (see our latest technical strategy note for a more detailed technical view on the currency).