Turkey has continued to take a toll on the rand, says Peregrine Treasury Solutions's Bianca Botes while the expected credit rating from Moody's later today will also weigh on the rand depending on the various possible outcomes.

"It was Turkey’s turn for the spotlight as the embattled country prepares for elections this weekend that will challenge the control of President Erdogan. Wednesday evening saw Turkish swap rates soar over 1000% as banks came under pressure to clamp down on liquidity to halt the rapid dumping of the Turkish lira," she said.

"This forced investors to short other Turkish financial instruments as well as turn to other merging market currencies as a proxy for the lira.

"The spillover in the South African market was brutal, with the ZAR retreating against all major currencies, and topping R14.73/$ on Thursday afternoon after trading in the mid R14.20s at the start of the week.  

"While Turkey’s woes are largely overshadowing the rest of the global market, local pressures continue to contribute to the rand’s turmoil. Even though the lights are on for the time being, load-shedding will form part of the South African environment for the foreseeable future, which will have a devastating ripple effect across all sectors of the economy.  

"Thursday afternoon saw the SA Reserve Bank Monetary Policy Committee announcing that the repo rate would remain at 6.75% and that future inflationary pressures would be largely attributable to higher Eskom tariffs, rising fuel costs, as well as a weaker rand.

"SARB governor Lesetja Kganyago, also warned of the effects of a sluggish global growth environment, as well as the current global market dynamic, listing trade tensions and Brexit as some of the key risk factors. The governor delivered more negative news: that local growth is more subdued than initially anticipated and the growth forecasts have been revised down from 1.7% to 1.3% for 2019.  

"Thursday also saw the release of local PPI figures, rising 4.7% year-on-year in February – marginally higher than the anticipated 4.6%. Today will see the release of the trade balance, expected to indicate a surplus of R2bn.  

"Another key event in store for the local economy today is ratings agency Moody’s rating decision, with four possible outcomes: No downgrade: Moody’s keeps the South African outlook at stable, with no downgrade in the sovereign rating. This announcement would be rand positive in the immediate and short term, however any retracement would be limited by the dominant global environment.

"Outlook changed from stable to negative (most widely expected outcome): Moody’s keeps the sovereign rating unchanged, while the outlook is changed from stable to negative, likely giving SA a stern warning about fiscal expenditure and growth concerns.

"The impact on the currency would likely also be positive in the immediate and short term, however, the change in outlook opens the door for a potential downgrade in November. Downgrade (largely unexpected): Moody’s cuts the sovereign rating, as well as changes the outlook from stable to negative.

"The rand would most likely have a kneejerk reaction in the short term, potentially breaking the R15.00/$ mark. Postponement: Moody’s takes the decision to wait until after the election to make its decision. This would leave the market in limbo, but a small retracement in the currency could be expected.  

"As the election creeps closer, politics in South Africa remains largely subdued, with the normal run-of-the-mill election antics playing out. While an ANC win is largely expected to be market positive, one cannot help but find the list of proposed cabinet members somewhat worrisome, as infamous names implicated in state capture make their appearance.

"We expect the volatility in markets to escalate closer to the election date, with many expecting a strong rebound in the currency post-election."

Asia stocks gain, capping strong quarterly rebound

Adam Haigh, Bloomberg

Asian stocks looked set to round out a strong quarter with gains on Friday, while the rally in sovereign bonds ebbed as investors gauge the outlook for growth. The dollar steadied after a three-day advance.

The MSCI Asia Pacific Index is heading for an 8.6% advance for the quarter, recouping the bulk of the fourth-quarter sell-off.

Chinese shares saw the biggest gains, with the Shanghai Composite up 2.4%. Equities also climbed in Japan, Hong Kong and Korea. US equity futures edged higher.

Australian bonds tracked modest declines in Treasuries.

Meantime, US-China trade talks are set to continue Friday, though negotiations may be prolonged. White House economic adviser Larry Kudlow said the Trump administration is prepared to keep negotiating with Beijing for weeks or even months.

Some of the rebound in equities this quarter has been attributed to the improved prospects for an end to the trade war between the world’s two largest economies.

“Risk assets are being supported right now, in my view, by a dovish Fed, a China stabilisation and better sentiment around geopolitical risks,” said Frances Donald, the head of macroeconomic strategy at Manulife Asset Management. “That probably gives this rally a little bit more juice.”

The Turkish lira earlier sank despite an organised effort to stem losses days before elections. The pound is at the low end of its recent range ahead of another Brexit vote looming in the UK Parliament.