Rand leads emerging-market currencies in mild risk-on trade
The rand was firmer against major global currencies on Thursday afternoon, leading the gains among its emerging-market peers, as investors wait for fresh catalysts.
The local currency continues to benefit from positive post-election sentiment, and the yield on the benchmark R186 bond has fallen to its lowest level in more than a year this week. Bond yields move inversely to bond prices.
Along with a post-election boost, local bonds were also benefiting from recent investor interest in major international bonds, such as US treasuries and German bunds, said Sasfin Wealth fixed-income trader Alvin Chawasema.
Local bonds could strengthen further, but uncertainty over the US-China trade war is currently limiting this, Chawasema said. The next major issue will be the composition of President Cyril Ramaphosa’s next Cabinet, while investors are also watching global economic growth closely.
At 2pm, the rand was 0.55% firmer at R14.1406/$, 0.53% stronger at R15.8425/€, and 0.76% up at R18.1206/£. The euro was flat at $1.1203.
The bid on the benchmark R186 was at 8.4%, rising 0.15 basis points from Wednesday’s close, according to Iress data. It is, however, now down 54 basis points from it weakest level this year, reached on February 14.
The US-China trade war has been the main issue driving sentiment this week, but investors are seemingly still betting on a quick resolution to the conflict, said Rand Merchant Bank analyst
“Barring bouts of geopolitical tensions, the risk environment is still supportive of emerging-market assets due to easier financial conditions,” she said. This should continue to underpin rand movements, provided the political environment is conducive to growth-enhancing structural reforms that are necessary to relieve SA’s socio-economic and credit challenges.
The rand was not only the best performing currency on Thursday, it had also fallen to the the third most-volatile currency on a one-week basis, according to Bloomberg data.
Correction: May 16 2019
An earlier version of this article stated that the R186 had strengthened 54 basis points since February 14. The yield on the bond has, in fact, fallen by that amount.