The South African rand was slightly firmer just before noon on Tuesday after the release of better-than-expected PPI data. Traders said that an upgrade of South Africa’s foreign currency rating by international credit ratings agency Moody’s had also improved sentiment in the forex market.
At 1153, the rand was trading at 8,0650 to the dollar from a New York close of 8,0930. It had been trading at 8,0990 at 1120, when news of the upgrade first hit the market.
The rand was trading at 12,7097 against sterling from a New York close of 12,7392 and at 8,6717 to the euro from a previous 8,7026.
“The PPI figures were positive and the upgrade was also good for sentiment, so I would have thought the rand would show more strength,” a currency trader said.
He postulated that the better-than-expected PPI data suggests that interest rate cuts were possible sooner than initially thought and that this would be negative for the rand as far as carry trade was concerned.
Favourable interest rate differentials have often been cited as a reason for the rand’s recent strength. The trader said that the market’s attention was focused on the 2003/4 Budget, to be unveiled just after 14h00, and trade was very quiet.
South African producer prices for all commodities rose 8,1% in the 12 months to end January from 12,4% for the 12 months to end December, Statistics South Africa said on Wednesday. On the month, they fell 0,4% in January on an actual unadjusted basis from the 0,7% decline in December.
The January PPI was expected to have increased by a median of 9,4% y/y, according to an I-Net Bridge survey of private sector economists. The range of forecasts was from 8,1% y/y to 9,8% y/y.
Economists had said there was a risk that the numbers could surprise on the
downside, given the strengthening in the rand in the past few months.
Moody’s Investors Service announced on Wednesday morning that it is changing the outlook for South Africa’s Baa2 country ceilings for foreign currency debt and bank deposits to positive from stable.
It cited declining government debt ratios, improved external liquidity, and careful macroeconomic management that compared favourably to South Africa’s similarly-rated peers as the reason for the change. – I-Net-Bridge