Rand cheers narrow deficit, easing CPI

Cape Town -  The rand hit 20-month lows on Wednesday following a boost from a narrow current account deficit and lower consumer price inflation.

By 16:42 the local unit was trading at R12.59 after earlier hitting R12.57 to the greenback. The range for the day was R12.57 to R12.73.

The SA Reserve Bank (SARB) announced on Wednesday that the current account deficit for the fourth quarter of 2016 has narrowed to 1.7% of GDP, the lowest seen in almost 6 years.

This is down from 3.8% reported in the third quarter.

The balance of payments deficit came down from R166bn to R76bn.

Consumer price inflation also came in better than expected, with Statistics South Africa earlier reporting that CPI has eased to 6.3% in February 2017, from 6.6% in January 2017.

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With the Fed still maintaining a gradual path for interest rates, coupled with other major central banks potentially looking to reduce policy divergence, the greenback is taking a beating despite the Fed hiking rate last wee, said RMB currency analyst Isaah Mhlanga.

The SARB said in its March Quarterly Bulletin on Wednesday the external value of the rand appreciated on balance by 7.4% on a trade-weighted basis in the fourth quarter of 2016. This is attributable to support from higher international commodity prices and reduced uncertainty in the global and domestic financial markets.

"Rand sentiment was further improved in December 2016, when two prominent international ratings agencies (S&P and Fitch) kept South Africa’s sovereign ratings unchanged.

"However further gains were limited by the stronger US dollar, as an increase in the Fed rate was anticipated."

On February 16, the rand strengthened to below R13/$ for the first time this year.

In January and February 2017, the rand appreciated 4.7% against the US dollar, mainly due to weakness of the dollar and indications of improving economic conditions in developed and emerging markets, the SARB said. Again the currency was supported by higher international commodity prices.

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The nominal effective exchange rate of the rand increased on balance by 18.7% in 2016, compared to a decrease of 19.7% in 2015.

The real effective exchange rate of the rand increased 23.6% from Jan 2016 to December, driven by the strength of the nominal effective exchange rate.

Even though the rand appreciated against currencies from advanced economies like the US dollar, euro and the British pound, it depreciated against emerging market currencies such as the Brazilian real and the Russian rouble.