Rand gains as mar­kets cheer US poll re­sults

Business Day - - FRONT PAGE - Karl Ger­net­zky Mar­kets Writer

The rand climbed to its strong­est level in more than two months against the US dol­lar as lo­cal as­sets got caught up in a wave of op­ti­mism that boosted riskier as­sets af­ter the US midterm elec­tions de­liv­ered a di­vided Congress.

Fur­ther gains may ease pres­sure on the Re­serve Bank, which has cited cur­rency weak­ness among the big­gest risks to its in­fla­tion out­look, to raise in­ter­est rates later in Novem­ber.

With in­ter­na­tional oil prices hav­ing eased from their high­est lev­els in more than four years, the rand’s gains may also set the stage for a cut in petrol prices in De­cem­ber.

Re­garded as the proxy of sen­ti­ment to­wards emerg­ing mar­kets, SA’s cur­rency jumped as much as 1.6% to R13.88 to the dol­lar, its best level since Au­gust 10, be­fore trad­ing at R13.97 by 5.40pm.

Since drop­ping to a 2018 low of R15.70 in early Septem­ber, the rand has gained 11%, re­duc­ing the risk that it will add to in­fla­tion­ary pres­sures or prompt a more hawk­ish stance from the Bank’s mon­e­tary pol­icy com-

mit­tee, which has a man­date to keep in­fla­tion at be­tween 3% and 6%.

The midterm poll re­sulted in Democrats get­ting con­trol of the House of Rep­re­sen­ta­tives, while the Repub­li­cans ex­tended their Se­nate ma­jor­ity.

The dol­lar was weaker on spec­u­la­tion that this will make it less likely for Pres­i­dent Don­ald Trump to pass on more fis­cal stim­u­lus. US cor­po­rate tax cuts ear­lier in 2018 were cred­ited for the dol­lar’s jump with emerg­ing-mar­ket coun­ter­parts, such as the rand, suf­fer­ing on bets that the US Fed­eral Re­serve would boost in­ter­est rates at a faster pace, mak­ing it more ap­peal­ing to hold dol­lar-de­nom­i­nated as­sets.

The dol­lar was “at his­tor­i­cally very strong lev­els and does ap­pear over­val­ued against many of its global coun­ter­parts”, said FXTM head of global cur­rency re­search Jameel Ah­mad.

In­vestec ex­pected the rand to av­er­age R13.70 in the fourth quar­ter of 2018 as sen­ti­ment to­wards emerg­ing mar­kets im­proved and a less­en­ing in the chances of a full-blown trade con­flict be­tween China and the US, the world’s two big­gest economies, chief econ­o­mist Annabel Bishop said. She said riskier as­sets typ­i­cally found favour in the fourth quar­ter.

While the mar­ket was pric­ing in a rate hike in SA in com­ing months, the next move was likely to be a cut, said Cap­i­tal Eco­nom­ics, which cited eas­ing in­fla­tion­ary pres­sure and a sta­bil­is­ing cur­rency.

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