Rand’s recovery hits snag as global sentiment sours
Nedbank analysts say the local currency is likely to consolidate after almost three weeks of weakness, but on a multi-month view global headwinds may persist
The recovery in the value of the rand hit a snag on Monday morning, with the apparent re-emergence of global trade concerns serving as an excuse for market players to shy way from risky assets.
The risk-off trade played out in weaker equities.
The rand has recently been caught up in the crossfire of a trade spat between the US and China, leaving many wondering about the potential effect on the global economy.
As one of the most liquid currencies, the rand is sensitive to global risk perceptions.
Last week, the unfavourable global environment coincided with a batch of disappointing economic data, helping to push the rand to nearly R14/$, its weakest since late November.
A weaker rand fuels inflation and could force the hand of the Reserve Bank to raise interest rates, just when growth is languishing.
But the rand has since made modest recovery from last week’s lows, with analysts pointing to technical factors behind its recovery, as well as higher local government bond yields, which they have said looked attractive to potential bargain hunters.
The yield on the benchmark R186 bond, which measures the cost of government borrowing, rose to highs of 9.23% last week, but has since come back to 8.77%.
The Turkish lira stood out among emerging-market currencies in early trade, rallying as much as 3% against the dollar after general elections at the weekend came out as predicted.
"We believe that the rand — and emerging-market currencies more broadly — are set to enter a phase of consolidation and strength after almost three consecutive weeks of rand weakness," Nedbank Corporate and Investment Bank analysts wrote in an e-mailed note to clients.
"However, on a multi-month view we believe that global headwinds are likely to persist."
At 10.47am, the rand was at R13.4960 to the dollar from R13.4209, R15.7335 to the euro from R15.6603 and R17.8753 to the pound from R17.7954. The euro was at $1.1659 from $1.1666.