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Rand edges higher ahead of Moody's rating review

Moody’s is indicatively scheduled to review the Baa3 rating and stable outlook it assigns South Africa later on Friday.

Picture: EWN.

JOHANNESBURG - The rand edged firmer early on Friday, lifted by a spell of risk demand after economic growth in the United States slowed, but the currency remained poised for a drop with Moody’s expected to cut the country’s ratings outlook to negative.

At 0650 GMT, the rand was 0.24% firmer at R14.5750 per dollar, having rallied as far as R14.5700 overnight before slowing as caution set in ahead of the decision by Moody’s, the last of the top three ratings firms to rate Pretoria’s debt at investment grade.

US gross domestic product increased at a 2.2% annualised rate, down from the initial estimate of 2.6%.

Moody’s is indicatively scheduled to review the Baa3 rating and stable outlook it assigns South Africa later on Friday. The other two big rating agencies, S&P and Fitch, have already downgraded the sovereign to “junk”.

The electricity crisis that saw state utility Eskom this month impose nationwide rolling blackouts, and an overall meek recovery in economic growth, has however raised the risk of a full downgrade.

On Friday morning the price of 25-delta risk reversals, an indication of the difference in volatility, and therefore price, between puts and calls on the rand, had climbed to a 7-month high as investors sought to buy more protection against a sharp slide in the currency.

Bonds were flat after also rallying in the previous session following the central bank’s decision to keep lending rates steady citing a benign inflation outlook. The yield on the benchmark 10-year issue was at 8.695%.

Stocks were set to open higher at 0700 GMT, with the JSE securities exchange’s Top-40 futures index up 0.44%.

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