Rand does well in line with other risk assets as dollar retreats
The rand extended gains on Tuesday afternoon, as the dollar lost ground against a basket of currencies, notably the euro.
The weaker dollar also boosted commodity prices, with the platinum price gaining just more than 2% to $813.69 an ounce. This also boosted platinum shares on the JSE.
Risk assets generally showed signs of resilience to a new twist in the continuing trade spat between the US and China. As widely reported, US President Donald Trump made good on his promise to slap tariffs on $200bn worth of Chinese goods, upping the ante in the trade dispute, which carries potential consequences for the global economy.
The rand has weakened substantially in recent months, limiting the potential for further falls — at least in the short-term. "There is a reasonable chance that once the dust settles we could see a decent recovery in the emerging-market interest-rate markets," said Ashley Dickinson, head of fixed-income dealing at Sasfin Wealth.
"Investors could well look to rand bonds for a yield enhancer once they have factored in the external components — trade conflicts and eurozone uncertainty — as local [factors] are pretty much a known and in the price."
The weaker rand environment has raised the spectre of higher inflation, which could persuade the Reserve Bank to raise interest rates by 25 basis points (bps) when its monetary policy committee wraps up its meeting on Thursday, according to some economists. Higher interest tends to attract foreign capital.
South African bonds were relatively steady in the afternoon, but, like the rand, have been under enormous pressure in recent weeks. The yield on the benchmark R186 was 9.26%, from 9.25% at its close on Monday.
"Some calm and stability has returned following the intense sell-off of emerging-market assets over the past few weeks," Old Mutual Multi-Managers analysts Dave Mohr and Izak Odendaal said in an e-mailed note to clients.
"Perhaps the 10-year anniversary of the Lehman Brothers collapse reminded investors what a real crisis looks like. In contrast, the recent troubles of emerging markets are very manageable — although, clearly tough times lie ahead for Argentina and Turkey, in particular."
At 3.21pm, the rand was at R14.8614 to the dollar, from R14.9291. It was at R17.4031 to the euro from R17.4436, and at R19.5537 to the pound from R19.6476. The euro was at $1.1710 from $1.1684.