South Africa’s current account deficit improved significantly in Q4 2024, narrowing to -R32 billion from -R56 billion in Q3 (revised), or to -0.4% of GDP year-on-year, down from -0.8%. For the full year, the deficit shrank to R44.5 billion in 2024, a marked improvement from R112.1 billion in 2023. This progress was largely driven by a robust trade surplus, which widened to R232.9 billion in Q4 from R200.4 billion in Q3, and more than doubled annually to R216.4 billion from R103.4 billion in 2023. However, the services, income, and current transfer account deficit grew to -R264.5 billion in Q4 from -R256.1 billion, pressured by a larger income account shortfall, though mitigated by smaller deficits in services and transfers. This ongoing improvement bolsters the ZAR by reducing reliance on capital inflows. Amid global uncertainties, including potential US tariff shifts and the looming loss of AGOA, sustaining trade surpluses and diversifying trade partnerships remain critical for economic stability.
In global news, the ECB lowered its benchmark interest rate by 25bps to 2.50%, shortly after February’s inflation report showed a slowdown to 2.4% y/y from 2.5% in January. Despite rising inflationary pressures since September, the ECB remains optimistic that disinflation is progressing toward its 2% target. The Governing Council’s statement suggests the rate-cutting cycle may be nearing its conclusion. This move unfolds as the Eurozone faces dual challenges: potential tariffs from the Trump administration and growing demands for higher defence spending. The decision reflects a strategic response to stabilise the bloc’s economy amid global uncertainties, balancing monetary policy with emerging fiscal and trade pressures.
ZAR Markets
The rand has capitalised on broad-based USD weakness, albeit with a lag. The ZAR is now trading at its strongest levels since mid-December, testing a break of its 200-day moving average around 18.1456. Given the USD’s overvaluation, one gets the sense that investors are looking for any opportunity for the USD to weaken, and today, that reason might be related to the labour market data scheduled for release. The market anticipates the US unemployment rate to remain unchanged at 4.0% and payrolls to rise 160k. Despite this week’s USD correction, buying remains unappealing until payrolls data arrives. A weak report could push USD-ZAR toward 18.0000; otherwise, expect consolidation before next week’s budget, which hasn’t significantly swayed markets.
Global FX Markets
The U.S. dollar lingered near a four-month low on Friday, weakened by uncertainty stemming from President Donald Trump’s fluctuating tariff policies, which have raised concerns about the growth outlook for the world’s largest economy. Trump’s Thursday announcement of another tariff reprieve for Mexico and Canada, set to expire on April 2 when reciprocal tariffs on all U.S. trading partners will take effect, failed to bolster the dollar. This kept the safe-haven yen near its strongest level against the dollar since early October, while the dollar hit a three-month low of 0.8820 against the Swiss franc and weakened against the Canadian dollar and Mexican peso.Market commentators, noted a decline in U.S. exceptionalism and a loss of dollar favour, with tariffs’ inflationary effects no longer propping it up. Attention turned to the upcoming U.S. nonfarm payrolls data, expected to show 160,000 jobs added in February (up from 143,000 in January) with unemployment steady at 4.0%, though softer results could further unsettle markets. Recent federal job cuts—62,242 announced in February across 17 agencies, contributing to 172,017 planned layoffs—signal a cooling economy, the highest since past recessions, per Challenger, Gray & Christmas. Federal Reserve Chair Jerome Powell’s economic outlook speech later Friday will follow the data, with markets anticipating 77 basis points of rate cuts this year.