The rand eased in early trade on Wednesday after solid gains the previous session and ahead of the release of the national budget, while stock futures climbed, tracking global shares higher.
Finance Minister Pravin Gordhan will unveil his first full budget at 2pm, and is expected to give an update on whether the central bank’s mandate to target inflation at 3% to 6% will change.
Analysts said any bold changes to the mandate — possibly to include growth and jobs or to alter the target band — or any moves to try stem rand strength could knock the local currency.
Gordhan will also update forecasts for economic growth and the budget deficit for the next three years, with a big shortfall in tax revenue likely to see the gap at about 7,8% of GDP for the financial year to March.
The rand was trading at 7,67 against the dollar at 6.45am GMT, 0,2% softer than its previous close in New York, supported by a steady euro which strengthened on the dollar on Tuesday on easing concerns about Greece finances.
“Overall the sense is that the overwhelming sentiment is driven by what is coming out of Europe … and there is a bit less risk aversion,” said Russell Lamberti of market analysts ETM, predicting a 7,60 to 7,75 range for the session.
“[But] there may be consolidation, if not weakening into the budget statement.”
Higher world stocks pointed to an uptick in risk appetite and could help lift the rand.
Asian shares leapt after a jump on Wall Street overnight, with financial and resource stocks shrugging off China’s latest move on Friday to temper robust lending.
South Africa’s blue chip Top-40 March futures contract was 1,1% higher.
Government bonds edged higher, adding to Tuesday’s gains sparked by a strong weekly auction and with few surprises expected in the deficit forecasts in the budget.
Retail sales due at 9.30am GMT may confirm consumer spending remains weak and keep chances alive of an interest rate cut next month. A Reuters poll forecast a 6,1% year-on-year decline in sales for December.
The yield, which moves inversely to the price, on the 2015 bond fell two basis points for the session to 8,31% while the 2036 yield was down 1,5 basis points to 8,89%. – Reuters