Rand slips away from two-week highs as midterms take centre stage

The rand eased from a two-week high against the dollar on Tuesday morning as caution set in before the US midterm elections, which are seen a key test to Donald Trump’s administration.

As one of the most highly tradeable currencies, the rand is likely to be caught up in the ensuing volatility, depending on the election outcome.

Oanda senior market analyst Craig Erlam said in a note to clients that US midterm elections may not spring any shocks in terms of who wins control of the House of Representatives, but investors remain cautious following volatility in October.

“With the Democrats [the] favourites to take control of the House and the Republicans the Senate, the next couple of years may be far more difficult for Trump. When you consider how markets have done since his election victory — granted, primarily on the back of tax reforms — it’s easy to see why this may not be the most investor-friendly result,” Earlam said.

Financial markets have been highly volatile in recent months, hobbled in part by continuing US-China trade tariff dispute and the prospect of more interest rate increases in the US.

The latter factor in particular has had a detrimental effect on the rand, which has fallen 14% against the dollar so far in 2018.  Foreigners have been net sellers of local bonds to the value of R55bn since the start of the year, according to the JSE data.

Nonresidents have also been selling local shares amid dim local economic prospects, hurting the rand in the process, although the extent of sell-off has since moderated.

At 9.23am the rand was 25% weaker against the dollar at R14.1868, 0.28% weaker against the euro at R16.1885 and 0.38% down to the pound at R18.5329. The euro was little changed at $1.1411.

Local bonds were relatively stronger, though, with the yield on the benchmark R186 bond fetching 9.12%, from 9.14% at its last settlement.

Brent crude was relatively stable at much weaker levels, compared with a few weeks ago, helping to ease inflation concerns. Brent crude was $72.67 a barrel in early trade, having climbed down from a four-year high of $85 a barrel.

Reuters