South Africa’s third budget attempt is set for May 21. Leading up to this announcement, the rand is expected to be highly sensitive to news about the Government of National Unity (GNU) and its ability to deliver a cohesive, responsible budget that garners broad support. Since the postponement of the initial budget, valuation studies indicate the ZAR has been trading at a discount. While some of this undervaluation has eased as confidence in the GNU’s stability grows, further recovery remains possible. The budgeting process will balance technical fiscal planning with political considerations, with the latter gaining prominence due to necessary expenditure cuts. Wasteful spending could be targeted, and of that there is more than enough to address a large chunk of the R75 billion fiscal deficit. If the government can eliminate inefficiencies without cutting essential social programmes and achieve a balanced budget, the rand could rally significantly, potentially breaking below the R18.0000/$ level by the end of May.
On the data front, the April edition of the Absa manufacturing Purchasing Managers’ Index (PMI) will headline a local card today that also includes NAAMSA vehicle sales numbers. However, the markets will likely be externally focussed, with all eyes on the US employment data for April. Nonfarm payrolls growth is expected to slow as the business cycle weakens. This would point to a US labour market that is cooling, but not yet coming under significant pressure. Unless we get a major downside surprise, the market’s current expectations of three Fed rate cuts before year-end should remain largely unchanged.
ZAR Markets
Risk-on trade has boosted the rand this morning, with the USD-ZAR testing a break of 18.5000 with some strong impetus. Not only is the rand finding support in news that the GNU is working towards tabling a budget later this month, but the international backdrop is also improving. This follows comments from China’s Commerce Ministry that it was evaluating the possibility of trade talks with the US after senior US officials expressed willingness to talk to Beijing about tariffs. China’s statement signals a potential shift in the stalemate between the world’s two largest economies, which higher-Beta markets are cheering.
Global FX Markets
The U.S. dollar is set for a third consecutive weekly gain, supported by progress in trade talks with U.S. trading partners and better-than-expected economic data, reducing concerns about investing in the U.S. The Australian dollar rose with Asian markets following Wall Street’s rally, fuelled by optimism for riskier assets, while the yen hit a three-week low of 145.91 against the dollar. After last month’s declines due to recession fears from President Trump’s unpredictable tariff policies, the dollar, U.S. Treasuries, and stocks have recovered. Market sentiment is improving with signs of U.S.-China trade talks, as Beijing considers Washington’s offer to negotiate tariffs. U.S. stocks rose due to strong tech earnings and a slightly positive manufacturing report, despite ongoing factory contraction. Focus now shifts to upcoming U.S. nonfarm payrolls data, which could boost the dollar, equities, and Treasury yields if strong. The dollar index remained steady, up 0.5% for the week, while the euro slightly rose to $1.1299, the Aussie dollar to $0.6396, and the New Zealand dollar to $0.5827. In Japan, trade talks with the U.S. continue, with another meeting planned for mid-May, though no agreement has been reached yet.