Rand extends rally as Donald Trump’s comments hit dollar
Standard Bank trader Warrick Butler says risky assets managed to withstand the meltdown in global equities, which is ‘quite extraordinary’
The rand was stronger on Friday morning, which, along with a slightly weaker oil price, helped to allay the fear of another fuel price increase in the near term.
Brent crude was trading at $81 a barrel on Friday morning, down from its recent four-year high.
The relative strength in the local currency came as US President Donald Trump took the unusual step of criticising the Federal Reserve for raising interest rates. Trump’s comments took the wind out of dollar’s sails, but the rand benefited in the process.
Global equity markets also stabilised in early trade, after a sharp sell-off over the past two days, boding well for the rand, which tends to do well when market participants feel confident about buying risky assets.
“It is not often that you see a meltdown in global equities without the same corresponding move in risky assets and yet this is exactly what we have seen over the past two days. Quite extraordinary,” said Warrick Butler, a trader at Standard Bank.
The rand and local bonds sat out the volatility of the past two sessions, which was usual.
Attention will now shift to Moody’s Investors Service, which is expected to review SA’s debt rating late on Friday.
Economists expect the ratings agency to keep the country‘s rating unchanged pending the presentation of the medium-term budget policy statement in about two weeks.
Newly appointed finance minister Tito Mboweni will have his work cut out for him in reassuring the markets and ratings companies that the country is on course to stick to the fiscal discipline.
His task is partly complicated by the economy, which slid into a recession in the second quarter, raising concern that the country may not be able to collect sufficient tax revenue to balance its books.
At 9.49am, the rand was at R14.4733 to the dollar from R14.6288, at R16.7904 to the euro from R16.9601 and at R19.1826 to the pound from R19.3560. The euro was at $1.1601 from $1.1593.
The yield on the benchmark R186 bond was at 9.230%, from 9.265%