Rand recovers as market sentiment improves
The hope that China and the US may resolve their differences during their meeting later in the week has improved market sentiment
The rand was much stronger on Monday morning, pulling further away from R15/$, which had ignited concerns of much higher inflation.
The hope that China and the US may resolve their differences during their meeting later in the week has improved market sentiment.
For the past week or so, the rand has been at the mercy of global risk-off trade, where investors sold emerging-market assets in particular, partly because of Turkish economic concerns.
Foreigners were net sellers of local bonds to the value of just more than R10bn over the past week alone, according the JSE’s weekly data, which explains the recent sharp drop in the value of the rand.
Foreign investors hold the biggest share of local debt at about 40%, making SA vulnerable to capital outflows in the global risk-off environment.
"We believe that the [rand] weakness is somewhat overdone, but that global risk aversion will continue to drive volatility in the currency," said Kaon Capital CEO Luke Alers.
Foreigners bailed out of South African equities, too, although the quantum of the outflows was less eye-popping than the bond outflows. Non-residents sold just shy of R2bn worth of local shares.
While the rand was caught up in Turkish contagion, analysts say local factors have contributed to the poor sentiment around local assets, notably stocks and bonds.
The concerns include the controversial land reform debate and the recent round of disappointing economic data, which led to the concern that SA might have tipped into a technical recession in the second quarter.
Markets will also focus on the release of inflation figures on Wednesday. Economists expect headline inflation to have accelerated to an annual rate of 5% in July, from 4.6% in June.
The Reserve Bank closely monitors inflation trends when deciding on interest rates. A week ago, Bank deputy governor Daniel Mminele said evidence of inflationary pressures would inform its approach on rates.
While inflation has been steadily rising since March when it hit a seven-year low, it was still largely expected to stay within the Bank’s 3%-6% target range in 2018.
At 9.54am, the rand was at R14.5174 to the dollar, from R14.6952. It was at R16.5771 to the euro from R16.7938, and at R18.5019 to the pound from R18.7208.