Rand pushes past R14/$ as volatility eases
Analysts are surprised by currency’s stability, which reflects that many risks are already priced in
The rand led gains among its emerging-market peers on Wednesday, pushing past the R14/$ level for the first time in two months.
The local currency has now firmed about 5.4% from its 2019 low reached in late March, with easing volatility in the rand possibly a sign of confidence in the government’s ability to push its postelection reform agenda, analysts said.
The local currency has stabilised since Moody’s Investors Service delivered a favourable opinion on SA’s credit rating earlier in April. Emerging-market currencies have recently been boosted by signs of progress in the trade talks between the US and China, and were firmer on Wednesday in anticipation of US Federal Reserve minutes later that were expected to be dovish.
Domestically, markets are now focused on SA’s weak economic growth rates and an expected postelection improvement in politics, policy, and therefore confidence, said Old Mutual Mutual Investment Group chief economist Johann Els.
“Markets tend to look forward — and I thus think, despite short-term noise and volatility ahead of the elections, markets are slowly taking a view that confidence could improve after the elections,” Els said.
Although the rand could be shaping up for a postelection relief rally of sorts, this would need to be checked by the reality of SA’s structural economic problems, said Mercato Financial Services analyst Nico du Plessis.
There also needs to be proof that President Cyril Ramaphosa would be able to implement the kind of reforms that would stabilise the fiscus and make SA less vulnerable to external shocks such as bouts of global risk aversion, Du Plessis said.
In later afternoon trade on Wednesday the rand was 1.09% firmer at R13.9329/$, 1.25% up at R15.6683/€ and 0.89% up at R18.2242/£. The euro was 0.17% weaker at $1.248.
This supported general retailers and banks on Wednesday, which jumped more than 2%. The JSE all share pushed to a five-month high, closing above 58,000 points for the first time since September 3 2018.
The local currency has risen about 3% so far in 2019, compared with an almost 8% depreciation by the Turkish lira. The lira remains battered by domestic politics in that country, but analyst said spillover effects into other emerging market currencies have been contained.