China’s slowing Growth further affects the – anyway – weak Rand

The Rand continues to tread the proverbial water these days on one of the weakest levels in the last decade. But it is not only home-made problems that contribute to the detriment of its alleged inner strength. It is the economic giants and at the same time South Africa’s trading partners that cause ripple effects and further concerns for the health of our beloved Randelas.

h3. China

Overnight data out of China showed fourth quarter GDP growth slowed to 7.7% annually, from a marginally higher 7.8%. Although close to median expectations, the data helps to confirm concerns that China is headed for a gradual slowdown. Consensus estimates thus far have come in around 7.4% for full-year 2014 growth, which would make it the slowest growth since 1990 as the PBOC looks to engineer a cooling off of growth through a tightening of credit standards.

Such a trajectory is viewed to be a fundamental negative for the rand, through its reliance on China as an export destination and given the impact on global growth sentiment. The rand can ill afford any further fundamental headwinds at a time when a plethora of factors have stacked up negatively to keep it near 2008 lows against the dollar.

h3. The USA

The primary driver in this respect remains the broad greenback recovery as the market aligns itself toward the possibility of continued Fed tapering. US retail and manufacturing data last week surprised to the topside to suggest that there is certainly potential for another small taper to occur come the FOMC meeting next week.

h3. Back home

One other concern is the flaring up of strike action domestically. With the above in mind it is not difficult to justify a still bearish medium term outlook on the rand when layering these factors on top of the twin deficits, low interest rates and weak economic growth.

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