Rand Benefits From Post-Fed Sentiment, Extending Gains Inspired By MTBPS

Broad-based greenback weakness allows USD/ZAR to extend its post-MTBPS sell-off this morning, with the pair printing new cyclical lows at 18.4086, its lowest point since Aug 24. Market sentiment this morning has been dictated by dovish interpretations of yesterday's on-hold rate decision from the Fed.

• USD/ZAR last changes hands at 18.4260, nearly 900 pips lower on the day. A break under the nearby Aug 24 low of 18.3805 would open up scope for a deeper decline. Conversely, bulls look for recovery towards the 50-EMA (18.8939) and Oct 26 high (19.2710).
• From a cross-asset perspective, SAGB yields have dropped sharply across the curve, with steepening evident. South Africa's 10-year breakeven inflation rate fell to a two-month low of 6.56% before trimming losses. The composite BBG Commodity Index has added 0.6%, with precious metals up 0.8%.
• Finance Minister Godongwana's mini-budget included plans to increase borrowing, trim spending and cut expenditure amid disappointing revenue and blowout debt-servicing costs.
  • After the delivery of the MTBPS, Barclays wrote that "South Africa's fiscal deficit is budgeted to widen by less than we had expected," which is "largely due to unexpected expenditure cuts that are welcome but may be difficult to implement, suggesting more funding needs ahead".
  • Nedbank wrote that "the country's fiscal position has weakened significantly" and the MTBPS "proposes significant expenditure restraint to reduce the country's fiscal vulnerabilities". In their view, "it's not too late" to "reverse the path to fiscal malaise".
  • Moody's said that the key elements of the MTBPS were broadly in line with expectations, with lower revenue forecasts and growing spending pressures raising the risk of deterioration in the government's balance sheet.
• The AGOA Forum kicks off in Johannesburg today, with the consensus being that South Africa will keep its preferential trade status with the US.
• South Africa will report data on electricity production and consumption in September at 11:00GMT/13:00SAST.