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Africa, Forex

South Africa’s rand steadies as Fed decision masks economic woes

JOHANNESBURG (Reuters) – South Africa’s rand gained early on Wednesday, with a likely cut in interest rates by the U.S. Federal Reserve taking the spotlight away from local economic troubles.

At 0640 GMT, the rand was up 0.28% at 14.1650 from a close of 14.2050 overnight in New York.

Cash-strapped power utility Eskom said on Tuesday it expected a loss of around 20 billion rand ($1.4 billion) in the 2019/20 financial year. Lack of improvement in its financial position indicated it would be unable to meet its obligations without government help.

Last week, rating agencies Fitch and Moody’s warned about increasing fiscal pressure after government said it would give Eskom an extra 59 billion rand, pushing the rand to a four-week low of 14.3150.

“There are many in the market questioning why the rand is not blowing off more than it has. Eskom is producing major losses, there are bailouts galore, and the budget deficit is blowing out to 6% or more,” said ETM Analytics in a note.

On Tuesday, data showed second-quarter unemployment rose to 29% from 27.6% in the first quarter, an 11-year high, underscoring the country’s fragile growth outlook. But early on Wednesday markets were looking ahead to the Fed rate decision later in the session.

Markets are pricing in a 25-basis-point cut and waiting for clues on whether more will follow.

Yields on the benchmark 10-year bond were steady at 8.305%

The South African Revenue Service publishes June trade balance figures at 1200 GMT, the only top-tier data release for the day.

(Reporting by Mfuneko Toyana, editing by Larry King)


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