Rand firmer as risk assets cheer US-China trade developments
A reprieve for SA from Moody’s Investors Service and risk-on trade in Asia point to a stronger start for the JSE on Monday
The rand was firmer against the dollar on Monday morning and leading emerging-market currencies, with Asian markets pointing to a positive start for the local bourse as investors welcomed positive US-China trade developments.
US officials said on Sunday licences for US firms to sell components to Chinese firms, including Huawei, are coming “very shortly”, leading to strong gains on Asian bourses.
“Huawei was not so long ago at the epicentre of the markets’ daily trade war risk regime, and while discussions have been thought to be compartmentalised of late, Huawei is still a crucial pawn in the broader trade talks narrative,” AxiTrader chief Asia markets strategist Stephen Innes said in a note.
The rand has also gained about 20c since Friday, though its reaction to the latest assessment by Moody’s Investors Service on Friday evening was muted.
Moody’s lowered its outlook for SA to negative from stable, a widely expected move, while analysts warned that the chances of a downgrade to junk status over the next year has risen.
“Government now has no alternative but to cut the ballooning public sector wage bill, dispose of loss-making state-owned enterprises and open up monopoly network service providers such as Eskom and Transnet to private-sector competition,” said Peter Leon, co-chair and partner at Herbert Smith Freehills. “If it fails to do so, junk status and the IMF beckon.”
“Most investors feel that the announcement had already been priced in, with short-term positivity seeing the rand moving stronger against the US dollar being probable during the course of the week,” said treasury partner at Peregrine Treasury Solutions Bianca Botes.
At 10.15am, the rand had firmed 0.29% to R14.8359 a dollar, 0.45% to R16.5454 a euro and 0.29% to R19.1824 a pound. The euro had weakened 0.16% to $1.1152.
Gold was down 0.28% to $1,509.78 an ounce while platinum added 0.43% to $953.58. Brent crude was flat at $61.6 a barrel.
The rand’s one-week implied volatility was still the highest among emerging-market currencies tracked by Bloomberg, although it has eased slightly off Friday’s two-month high.
The yield on the generic benchmark 10-year government bond is at a seven-month high. Bond yields move inversely to bond prices.
The Shanghai composite was up 0.58%, while Hong Kong’s Hang Seng gained 1.58%.