South Africa’s rating review on Mar 29 likely to cause stronger fluctuations in ZAR exchange rates, says Commerzbank

South Africa’s rating review on March 29 is likely to lead to increased nervousness on the markets and thus to stronger fluctuations in ZAR exchange rates, according to the latest research report from Commerzbank.

Although the depreciation pressure due to global factors and risk-off sentiment recently eased somewhat, the rand was not able to benefit, as domestic factors such as the forthcoming rating review and the upcoming elections in May are having a negative impact.

Weak economic data puts an additional strain on ZAR. In January, production in the manufacturing sector fell seasonally adjusted by 2 percent m/m, while the December result was revised up to +1 percent, the report added.

Compared to the previous year, however, output grew by just 0.3 percent after 1.2 percent in December. Looking at the leading indicators, there is no hope of an improvement in the near future.

The purchasing managers' index for the manufacturing sector slipped back into recession range in February. And the quarterly Business Confidence (BER) recently fell to its lowest level since June 2017.

"These are currently not good odds for the Rand, which we see for the time being under pressure to sell," Commerzbank further commented in the report.