The rand price firms but political risk remains

South Africa’s current account improves in Q3 2022

The South African Reserve Bank (SARB) has reported that the country’s current account deficit narrowed to 0.3% of gross domestic product (GDP) in the third quarter of 2022 (Q3 2022) from a deficit of 1.6% in the second quarter (Q2 2022). In currency terms, the deficit moved from R107bn in Q2 2022 to 18.1bn in Q3 2022. South Africa’s trade surplus did however lessen to R233bn from R252bn from quarter to quarter.

The better-than-expected current account data follows on from better-than-expected Gross Domestic Product (GDP) data earlier on in the week.

Local GDP surprises

Q3 2022 Gross Domestic Product (GDP) data, as reported by Statistics South Africa (Stats SA), was a significant beat on consensus estimates, with quarter-on-quarter (q/q) growth of 1.6% being realized (vs est. 0.4%). Real GDP surged by 4.1% year on year (y/y) for the three-month period, while the nine-month tracking of unadjusted growth was 2.3% (against the prior year’s comparative nine-month period).

Political risk subsides although still prevalent

This week has seen a calming of the rand following the previous week’s concerns that President Cyril Ramaphosa may resign from his post in lieu of the ‘Farmgate’ report and its suggestion of criminality.

A spokesperson for the president, Vincent Magwenya has told the media that the president is unlikely to resign and that the scandalous report is ‘flawed’.

The governing African National Congress (ANC) has backed the president’s position on the matter helping ease some of the negative short-term sentiment.

Investigations into ‘Farmgate’ are ongoing. Should the investigations yield criminal proceedings, we could still see risk in Cyril Ramaphosa having to relinquish his post later, suggesting a continued political risk of uncertainty for the rand and SA Inc.

The new week will see the 55th National Conference of the African National Congress (ANC) scheduled to take place from 16 to 20 December 2022. The conference looks to elect an 80-member National Executive Committee (NEC), as well as the ANC’s top six representatives including its president. Branches of the ANC have apparently asked the president to make himself available for reelection at the meetings. Cyril Ramaphosa sees Zweli Mkhize as his primary competitor for the ANC presidency.

The Rand

The short to medium term trends for the USD/ZAR remain down while the longer-term trend remains up. The 20-day simple moving average (red line) trading firmly below the 50-day simple moving average (green line) provides evidence of the short to medium term downtrend, while the price still trading above the 200-day simple moving average provides evidence of the longer-term uptrend still in place.

The currency pair also trades in oversold territory right now.

The technical indications on the USD/ZAR are providing some near-term ambiguity and in turn we look at scenarios which could provide us some more directional certainty.

For long trades on the currency pair, we would like to see a price close above the 17.60 resistance level before targeting a move to 17.90. A close above 17.90 would consider 18.40 a further resistance target.

A short bias to trades would only be considered should we see a close below the 200MA at 16.75.