Rand climbs to seven-week high

• Healthy increase in exports gives currency shot in the arm with June surplus more than double that of forecasts

The rand jumped to a seven-week high on Tuesday in a weaker dollar environment and as foreigners bought into local bonds, with their relative high yields offering attractive opportunities.

The rand jumped to a sevenweek high on Tuesday against a weaker dollar and as foreigners bought into local bonds, with their relatively high yields offering attractive opportunities.

A solid trade number boosted the rand, with the data showing a healthy increase in exports. June’s surplus of R12bn was more than double market expectations and followed May’s surplus of R3.5bn, which was revised upwards by R330m. A Bloomberg consensus forecast a surplus of R5bn for June.

Traders said it was too early to predict a return of Ramaphoria as the rand was mainly reacting to international developments. With inflation in the US set to rise, the US Federal Reserve could adopt a more hawkish tone, which would almost certainly lead to even further dollar strength. This would have a deleterious effect on emerging-market currencies such as the rand.

But for now the rand bulls have it.

Markets have priced in two more interest rate increases in the US in 2018.

The rand reached R13.07 to the dollar in intraday trade, its best level since June 8.

“It seems as if the rand is targeting R13,” said TreasuryOne head of dealing Wichard Cilliers.

Foreign flows into the South African bond market last week amounted to a net R5.57bn, bringing monthly gains to R5.8bn. For the year there has, however, still been an outflow of R33.7bn from the bond market.

Foreigners are still shunning local equities, selling a net R1.2bn last week and R5.8bn in the month so far.

Inflows for the year, however, stand at R11.5bn.

The latest catalyst for global risk-on trade came from Japan, whose central bank again committed to sticking to its ultraloose monetary policy, saying rates are to stay low for an “extended period”.

The rand shrugged off weaker commodity prices, which came under pressure after China’s manufacturing purchasing managers’ indices fell to a monthly 51.2 points from 51.5, its slowest pace of growth in 12 months.

The market is now concerned that the first round of higher tariffs announced by President Donald Trump might begin to have an effect.

“Soft economic data from China fuelled concerns over trade tension, negatively impacting the world’s secondlargest economy, affecting risk sentiment toward the rand,” said FXTM analyst Hussein Sayed.

There are still many sharks in the water ready to scare the rand. These include a US-led trade war, an escalation in geopolitical conflict and a faster than expected trajectory in US interest rate hikes.