The rand climbed to its strongest level in more than two months against the US dollar as local assets got caught up in a
wave of optimism that boosted riskier assets after the US midterm elections delivered a divided Congress.

Further gains may ease pressure on the Reserve Bank, which has cited currency weakness among the biggest risks to its inflation outlook, to raise interest rates later in November.

With international oil prices having eased from their highest levels in more than four years, the rand’s gains may also set the stage for a cut in petrol prices in December.

Regarded as the proxy of sentiment towards emerging markets, SA’s currency jumped as much as 1.6% to R13.88 to the dollar, its best level since August 10, before trading at R13.97 by 5.40pm.

Since dropping to a 2018 low of R15.70 in early September, the rand has gained 11%, reducing the risk that it will add to inflationary pressures or prompt a more hawkish stance from the Bank’s monetary policy committee, which has a mandate to keep inflation at between 3% and 6%.

The midterm poll resulted in Democrats getting control of the House of Representatives, while the Republicans extended their Senate majority.

The dollar was weaker on speculation that this will make it less likely for President Donald Trump to pass on more fiscal stimulus. US corporate tax cuts earlier in 2018 were credited
for the dollar’s jump with emerging-market counterparts, such as the rand, suffering on bets that the US Federal Reserve would boost interest rates at a faster pace, making it more appealing to hold dollar-denominated assets.

The dollar was "at historically very strong levels and does appear overvalued against many of its global counterparts", said FXTM head of global currency research Jameel Ahmad.

Investec expected the rand to average R13.70 in the fourth quarter of 2018 as sentiment towards emerging markets improved and a lessening in the chances of a full-blown trade conflict between China and the US, the world’s two biggest economies, chief economist Annabel Bishop said. She said riskier assets typically found favour in the fourth quarter.

While the market was pricing in a rate hike in SA in coming months, the next move was likely to be a cut, said Capital Economics, which cited easing inflationary pressure and a stabilising currency.