Rand hits 18-month high on US, French jitters

The rand reached R13.07 to the dollar in intraday trade on Tuesday, its best level in 18 months, as global jitters supported emerging market sentiment.

The rand was poised to strengthen through R13/$ after convincingly breaking below the R13.20/$ resistance level on Tuesday. It has failed to break through R13.20/$ on four occasions since August 2016.

“The firmer rand means that the outlook for inflation and interest rates has improved,” said Old Mutual Multi-Managers analyst Izak Odendaal.

Tuesday’s strength was ascribed to concerns in developed markets about the looming French presidential election in April, as well as the uncertainty created with the resignation of US President Donald Trump’s national security adviser, Michael Flynn.

The rand’s resilience was unusual in that the dollar remained strong against major currencies including the euro. The euro was at $1.0584, from $1.0596 in early evening trade.

Analysts at Nedbank Corporate and Investment Banking expect the rand to reach R12.80 in the short term.

Better-than-expected trade statistics from China on Friday supported emerging market currencies. That was followed up by data indicating exports from China, Brazil and Korea — all grew strongly in dollar terms in January.

Higher commodity prices were an added boon for the rand, with gold firming 0.63% to $1,232.33 an ounce. Platinum rose 0.8% to $1,005 an ounce.

Nomura analyst Peter Attard Montalto expects the rand to trade between R12.50 and R13, before weakening again in the second half of the year.

However, Attard Montalto has significantly retraced his dire predictions for the rand.

At the beginning of 2016, he said the rand was set to weaken to R19. He now expects an endtarget for 2017 of R15.50.

There were still many risks for the rand. “The general consensus is that an underlying economic fair value for the rand is somewhat stronger than at present levels, but this assumes zero-risk premia.”