Developments in trading of the rand in foreign currency markets

The rand remains a highly liquid emerging market currency. However, the trading of the rand in foreign exchange markets is increasingly taking place outside of South Africa, and by non-bank financial institutions. This is a trend observed in most emerging market currencies. This change brings with it a need for market participants, especially the monetary authorities, to change the way they gather their market intelligence. || This BER Research Note was compiled exclusively for BER clients by Leon Myburgh – formerly Head of Financial Markets at the South African Reserve Bank. ||

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After improving in 2019Q3, construction activity gained further ground in 2019Q4. The higher activity lifted the FNB/BER Civil Confidence Index to 22, from 15 in 2019Q3. This marks the first time since 2017Q2 that confidence has been above 20.

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) started the year on the back foot and declined further in January. The PMI lost 1.9 points to reach 45.2 index points, the lowest level since September 2019. The performance of the five major subcomponents was mixed, with two indices recovering somewhat from multi-year low levels reached in the previous month, while the three other indices declined in January.

After dropping from 28 in the second quarter to a 20-year low of 21 in the third quarter, the RMB/BER BCI rose to 26 in the fourth quarter. Confidence rebounded in three of the five sectors making up the BCI namely the building, manufacturing and retail trade. It declined in the new motor trade and remained essentially unchanged in the wholesale trade sector. Though the fourth quarter rebound in the RMB/BER BCI is encouraging, some realism is necessary: the improvement was a mere five index points and was not broadly-based across sectors. Moreover, at 26, the BCI remained deep in net negative terrain, with a strong majority of respondents still expressing a sense of pessimism.

The FNB/BER Consumer Confidence Index (CCI) stayed unchanged during the fourth quarter of 2019. At -7 index points, consumer confidence remained at its lowest level since the fourth quarter of 2017 (-8). The confidence gains since Mr. Ramaphosa's election have now been completely reversed and South Africa's grim economic reality has become apparent to consumers. (The fieldwork for the fourth quarter CCI was completed before the implementation of stage 6 load shedding in December.)