Rand regains lost ground against dollar but remains fragile
The rand had gained 0.87%, or 13c, to the dollar on Monday afternoon on a marginal comeback by the euro since last week. The local currency, however, is still down 17% on the dollar so far in 2018.
The pending resumption of trade talks between the US and China has supported marginal risk-on sentiment, but analysts say the strength in the euro might be temporary, as the market awaits the release of the US Federal Reserve’s federal open market committee minutes on Wednesday.
The minutes are likely to reveal a slightly more hawkish stance from Fed members, with the likelihood remaining that there will be two further interest-rate hikes in the US later in the year. The Fed kept rates unchanged, at 2%, at its last meeting.
The Fed is also hosting global central bank heads for its annual conference at Jackson Hole later in the week.
The rand was hammered on Friday amid perceptions that the Reserve Bank’s independence may be at risk following EFF leader Julius Malema’s tabling of a bill in parliament proposing that the state become the Bank’s sole shareholder.
Amid a load of other issues, the rand received some benefit from changed market perceptions that there is little similarity between the economic situation in SA compared with that in Turkey.
The rand has weakened over the past few weeks on contagion from the Turkish crisis, which affected a number of emerging-market countries. The Turkish lira has lost 38% against the dollar in 2018, according to Iress data.
Our level of inflation is about a third of Turkey’s and at the moment our president does not tell the Reserve Bank what to do.Adam Phillips, analyst, Umkhulu
"Our level of inflation is about a third of Turkey’s and at the moment our president does not tell the Reserve Bank what to do," said Umkhulu analyst Adam Phillips.
He said there was scope for the rand to gain further from the two-year low of R15.02 last week. "But we could also see another steep weakening move in nervous trade," he said.
The rand came under pressure last week amid renewed concern over the local political and economic situation, which saw local bonds being sold off by more than a net R10bn. Local equities experienced a net outflow of R2bn.
The concerns include the controversial land reform debate and the recent round of disappointing economic data, which led to worries that SA might have tipped into a technical recession in the second quarter.
At 2.58am the rand was at R14.5667 to the dollar from R14.6952, at R16.6425 to the euro from R16.7938 and at R18.5902 to the pound from R18.7208.
The euro was at $1.1425 from $1.1439. It reached a worst level of $1.1301 last week.
Local bonds were slightly firmer ahead of the release of consumer inflation data for July, due on Wednesday. The consumer price index (CPI) is expected to have risen to 4.9% year on year, or even higher, from 4.6% in June.
The R186 was bid at 9% from 9.04%.
The US 10-year treasury was last seen at 2.8388% from 2.8587%.