Local economic data has been relegated to the back burner ahead of the postponed budget, with South Africa’s fiscal dynamics considered a structural driver of the ZAR. The budget holds plenty of market-moving potential, with investors hoping for material signs of fiscal consolidation by the GNU that could lead to credit rating upgrades down the line. Nevertheless, it is worth taking stock of SA’s lack of economic dynamism.
The BER’s business confidence index remained steady at 45 points in Q1 2025, matching its highest level since early 2022 after three consecutive quarterly gains. Though slightly above the long-term average of 43 points and a marked improvement from pre-election 2024 lows, the index continues to reflect mild pessimism, with confidence dipping in four of five sectors. Stable electricity, easing inflation, GNU optimism, and lower interest rates have bolstered sentiment in recent quarters, but renewed load-shedding, GNU political friction after the delayed National Budget, and tensions with President Trump threaten to erode gains.
Meanwhile, S&P Global’s SA PMI (all Economy) rose to 49.0 in February from 47.4 in January, signalling a slower pace of deterioration, but still sitting below the 50.0 breakeven. Despite hopes for a stronger cyclical upswing, recovery hinges on the upcoming budget delivering bold reforms. At this stage this appears unlikely, given the government’s ideological stance hinted at in the leaked draft.
ZAR Markets
Traders continue to navigate difficult cross-currents as US President Trump’s policies look to be accelerating the global business cycle towards a downturn. While any consequent selloff in global equities would hurt higher-risk assets, including the ZAR, the US Federal Reserve’s expected response to that (suspending Quantitative Tightening and lowering interest rates) would drive US Treasury yields lower and eventually support risk appetite. It’s a matter of timing these dynamics right, and, for now, it seems the market is struggling with that. As things stand, the market appears to be attempting a break out of recent trading ranges, with the USD-ZAR currently testing its 100-day moving average at 18.2874. A sustained break below this would open the door for a slide towards the 18-handle. Meanwhile, the EUR-ZAR is trading in the opposite direction, having closed at a year-to-date high of around 19.8000 yesterday. General sentiment towards the common currency is rebounding as Germany’s plans to loosen fiscal policy are bolstering the bloc’s growth outlook, potentially reducing the scope for ECB easing down the line. Against this backdrop, the ECB’s policy update today will be interesting to gauge how policymakers are assessing the situation.
Global FX Markets
The euro reached a four-month high against the U.S. dollar on Thursday, driven by a spike in European bond yields following Germany’s announcement of a 500 billion euro ($539.85 billion) infrastructure fund and a revision of its borrowing limits. The euro hit $1.0803, its highest since November 8, and is up nearly 4% this week—its best performance since March 2020—though it later stabilized at $1.0792. The surge came as Germany’s 30-year bond yields jumped by up to 25 basis points, reflecting investor reactions to the increased borrowing plans. An upcoming European Central Bank decision, expected to include a quarter-point rate cut, will be closely watched for signals on future easing. The U.S. dollar weakened near a four-month low against a basket of currencies, trading at 104.31, after dipping to 104.25. This followed the Trump administration’s decision to grant a one-month reprieve on 25% auto import tariffs from Canada and Mexico, provided they meet existing trade agreement terms, easing some trade tension fears. However, uncertainty around U.S. trade policy persists. The dollar edged up 0.2% against the yen to 149.17 and 0.1% against the offshore yuan to 7.2438, though it weakened slightly against the Canadian dollar (C$1.4327) and Mexican peso (20.3933).