Rand struggles to claw back losses

THE RAND struggled yesterday to shrug off last week’s losses in light of emerging market currencies being kept on the back foot after strong US employment data released on Friday raised a further expectation of a possible interest rate hike later this year by the US Federal Reserve Bank.

At 5pm, the local unit had weakened to R13.43 against the greenback, while it was little moved against the euro trading at R15.30 and inching marginally higher to trade at R17.25 against the pound.

Last week the rand hit a seven-week low of R13.50 against the dollar, shedding more than 2 percent, after the governing ANC’s marathon policy conference, at which the party said it was looking into nationalising the South African Reserve Bank (Sarb) and expropriating land.

The local unit has in recent months gone from being one of the best performing emerging markets currencies to being one of the worst. The weaker rand boosted gold mining stocks, which surged 2.4 percent on the local bourse.

Tiffany Pollock, an analyst at Merchant West, said the general feeling in the market was that there was an overreaction to the Sarb nationalisation talk.

“The public protector’s order on the Sarb’s powers, meanwhile, is facing increasingly harsh opposition as even the Speaker of Parliament, Baleka Mbete, has decided to join the court challenge.

“But none of this has filtered down into local markets as the rand, bonds and even credit default swops continue to languish,” Pollock said.

Policy talk “Globally, there is a lot of talk regarding policy tightening and this will surely attract even more attention than usual in US Federal Reserve chairperson Janet Yellen’s semi-annual address to the US Congress tomorrow. She is expected to guide the market towards expecting the Fed balance sheet unwind to begin in September,” Pollock added.

Yellen is expected to shed more light on the bank’s plans around interest rates and trimming down its $4.5 trillion (R60.17trln) in assets it had built up after the 2008 financial crisis.

The hawkish tone from The European Central Bank and the US Fed in the last few weeks has stymied emerging markets rally, according to data from JP Morgan.

In the week ending July 5, emerging market bond funds suffered net outflows for the first time this year with foreign investors withdrawing $70 million compared with inflows of $1.8 billion in the week ending June 28. Emerging market equity funds also tumbled with inflows tanking to $438m, down from $2.5bn the previous week.

The International Monetary Fund has also warned that SA’s vulnerabilities have become more pronounced.