THE rand extended a rally away from six-month lows early yesterday, as speculation rose that US President Donald Trump’s tax overhaul plan would stall the rattled dollar.
RMB market analyst John Cairns said the halt and even partial reversal, in the dollar rally has brought much-needed relief to emerging markets (EM) currencies. “USD/ZAR dipped as far as R13.61 on Tuesday and yesterday opened at R13.67/$, waiting for more direction from the dollar. “The rand was a marginal outperformer in the high-yield EM space.
However, the strength was not large enough to suggest any reversal, particularly as the rand was an underperformer in the period of dollar strength,” he said. By late afternoon yesterday, the local currency was 1.78% firmer trading at R13.54/$, pulling further away from the six-month trough of R13.86/$ reached on Monday after pressure from potentially fast-rising US lending rates and riskoff mood following a visa spat between Ankara and Washington put pressure on emerging markets.
“The markets focus on the Fed and what is going to happen in December (hike or not) is driving currency moves for the most part. “The rand has its own domestic issues/woes to worry about as well but that becomes more important in a couple of weeks,” Standard Bank’s chief currency trader wrote in a note.
Investec group chief economist Annabel Bishop said the rand has traded in a tighter range in 2017 than it has done in some other years. “In the first quarter of 2017, the rand has weakened to date due to USD strength on expectations of slightly higher US interest rates than previously factored in by the markets.
“However, looking forward for the rand, much will depend on the global growth and commodity cycle, with high risks of both volatility and weakness, while further credit rating downgrades are a real risk to the domestic currency,” Bishop said. Johann Els, Old Mutual Investment Group head of economic research, said the strong global economy is indeed providing support to the SA economy through the ongoing supportive environment for commodity prices and EM as an investment destination, both helping to ensure a relatively stable rand exchange rate.
-With Reuters firstname.lastname@example.org