Rand (ZAR) Fluctuates against US Dollar, Pound and Euro after South Africa posts R11 Billion Trade Deficit

As local trading kicked off the Rand was holding steady against the Pound and the US Dollar.

The emerging-market asset advanced on the Pound yesterday after UK first quarter growth figures fell short of forecasts, and an improved global economic outlook boosted higher-risk assets overnight.

According to Barclays; ‘The Rand finished stronger on Tuesday, along with other emerging-market currencies on the back of more encouraging US corporate earnings and less immediate concern surrounding the geopolitical tension between Russia and Ukraine. However, we still favour fading Rand rallies over the coming days as we forecast a larger than expected local trade deficit reading today and a stronger than consensus US nonfarm payroll print on Friday.’

And the financial institution was correct in its assessment of the situation.

With the ongoing platinum sector strike having a serious impact on exports and driving up imports of oil, South Africa posted a trade deficit of 11.4 billion Rand in March.

This was considerably worse than the 1.5 billion Rand deficit expected by economists and followed a positively revised surplus of 647 million Rand the previous month.

While imports jumped by 12 per cent, exports fell by 3 per cent.

In the opinion of one Johannesburg-based industry expert, the trade data is a direct result of the 3-month long strike in the platinum sector and wider deficits could be recorded if the situation remains unresolved.

The Rand broadly weakened after the data was published and gave up earlier gains against the Pound.

Sterling, meanwhile, was supported by the day’s surprisingly upbeat consumer confidence report for the UK and the expectation that the British economy will continue to go from strength to strength.

As highlighted by currency strategist Kiran Kowshik; ‘The UK economy is firing on all cylinders. Given the data, Sterling should rally more but positioning is very stretched. In the near term, Sterling is susceptible to any downside surprises.’

However, the Rand recovered losses against the US Dollar after the US GDP report revealed that the US economy all but stagnated in the first quarter of the year.

The US posted annualised first quarter growth of just 0.1 per cent, woefully below the 1.2 per cent expansion envisaged by economists.

Later today the Federal Open Market Committee will deliver its policy statement. If the central bank adopts a dovish tone (which seems likely considering today’s report) the Rand could advance further against the US Dollar.

Tomorrow manufacturing reports for China, the UK and South Africa could all have an impact on Pound to Rand movement.