The rand-dollar exchange rate hit a three-week high on Thursday despite expectations.

The rand fell 9% against the dollar following President Jacob Zuma’s cabinet reshuffle at the end of March, in which finance minister Pravin Gordhan was replaced by Malusi Gigaba. S&P Global Ratings and Fitch subsequently downgraded SA’s sovereign credit rating to junk.

In late trade on Thursday, the rand reached R13.1148/$ from R13.2738/$, as the dollar weakened against the euro. The euro has stabilised at about $1.0750 after the US Federal Reserve’s less-than-hawkish monetary statement in March.

A weaker dollar, positive emerging market sentiment and a higher gold price are all driving the rand. The big question, said Old Mutual economist Rian Le Roux, was whether the rand was stabilising, "or is the big hit still coming"?

He attributed its renewed strength to Gigaba’s pledge to avert a third credit downgrade, this time from Moody’s.

He said the danger now was losing the investment grade on domestic bonds, which could trigger big outflows.

Analysts said it seemed as though positive emerging market sentiment was the main driver behind rand strength, as the market looked beyond the downgrade announcements.

Franklin Templeton analysts said many emerging markets enjoyed favourable conditions. "These include the softer dollar, solid demand from China and an absence — to date — of
protectionist trade measures from [US] President Donald Trump’s administration."

Local economic fundamentals remained relatively rosy, with this week’s positive consumer inflation data supporting the rand. Consumer inflation fell to an annual 6.1% in March from 6.3% in February. Despite the rand weakening on the downgrades, it is still stronger than a year ago.

"This would actually depress headline inflation going forward," said Capital Economics analyst John Ashbourne. The relationship between the rand and inflation was weak, he said. Inflation slowed in 2015, despite rand weakness and remained strong in late 2016 in the face of an appreciation in the currency.

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