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- Spot GBP / ZAR at time of publication: 20.09
- Bank transfer rates (indicative): 17.50-18.00
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The British pound has risen twice in a row against the South African rand, and this week’s trading results will depend on the results of the survey conducted by the author Moodys and tone in global markets.
The Rand is in the background at the time of writing, in line with the soft sentiment in global markets, which usually discourages the “risk” of the South African currency.
The pound-to-rand exchange rate rose a third percent to 20.09, putting the British currency on track for a potential fourth daily rise in a row.
Meanwhile, the dollar-to-rand exchange rate was 0.83% higher at 14.50, while the euro-to-rand exchange rate was half a percent higher at 17.45.
“The risk comes at the start of a quiet DXY bidding session against virtually all other major currencies. The plunge in gold and copper was partly due to the strengthening on the leg of the dollar, ”said Bipan Rai, head of monetary strategy in North America. Capital Markets CIBC…
Above: GBP / ZAR has exited a short-term downtrend.
If global markets and commodities experience difficulties over the coming week, we can expect the Rand to continue to lose ground against the pound, euro and US dollar.
However, at the end of the week, it is possible that attention will be focused on domestic fundamentals, as one of the world’s largest rating agencies evaluates the country’s debt profile.
“Moody’s Country Review this week carries significant risks for the ZAR,” says Peter Stoneham. Reuters market analyst.
Moody’s will release its latest estimate for South African sovereign bonds after markets close on Friday.
They already classify the bonds as “junk”, but further downgrades in forecasts could create additional obstacles for international investors looking to buy or hold the asset.
On November 20, 2020, Moody’s downgraded the South African government’s long-term foreign and local currency issuer ratings to Ba2 from Ba1.
“The agency has a negative outlook for South Africa, which should lead to a rating downgrade. However, there is a chance that Moody’s could push back any downgrade in the future, ”Stoneham says.
The key factor behind the previous downgrade to Ba2 was Moodys’ anticipated further weakening of South Africa’s financial strength in the medium term.
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While the rating action earlier in 2020 reflected the erosion of the country’s credit profile that preceded the coronavirus crisis, the action on November 20 reflected Moody’s assessment of the impact of the pandemic shock both directly on the debt burden and indirectly by exacerbating the country’s economic problems. and social barriers to reform.
However, any move by the Moodys towards Rand could end up short-lived given Rand’s continued sensitivity to global investor sentiment.
The Rand is one of the best performing major currencies of 2020, especially in the emerging market space, and for now, it looks like this attachment to global factors is likely to remain unchanged.
“Strong demand for commodities, especially metals, has shielded the ZAR from much of the risk aversion that has plagued emerging markets this year,” Stoneham says.
Improved sentiment among global investors in 2020-2021 has led to strong demand for South African stocks and government bonds, which offer higher yields than developed countries.
These assets have become even brighter given concerns over Turkey, which is seen as a fall in a similar investment category for those seeking to profit from emerging markets.
But if Moody’s offers a disappointing review of South African bonds, some of that attraction could disappear and could be combined with any deterioration in risk sentiment to undermine the currency’s 2021 rally.