Rand ready to break the R13/$ barrier
THE RAND was yesterday a touch stronger against the dollar as the greenback reeled to 16-month lows against major currencies, following tropical storm Harvey that ravaged the heart of the US energy sector in Houston.
The US’s fourth largest city was pummelled by catastrophic flooding with the damage bill already drawing comparisons to Hurricane Katrina in 2005, which caused $108 billion (R1.4 trillion) of losses.
At 5pm, the rand was bid at R13.0466 against the dollar, after having touched the physiological barrier of R13 against the greenback in intra-trade.
Tiffany Pollock, a forex and money markets trader at Merchant West, said the rand was currently positioned in a sweet spot to take advantage of any dollar bearishness in the wake of US Fed chairperson Janet Yellen’s dovish comments and Donald Trump’s continuing lack of approval and delivery of reforms.
“Although the support of R13 has held for now, we do expect it to be retested, with a level of R12.94 and then R12.88 being eyed out by many investors as the search for higher yields comes back into play as interest shifts from the US to other emerging market currencies,” Pollock said.
The sharp decline of the dollar yesterday was a continuation since Friday, after Yellen failed to mention monetary policy at the closely watched Jackson Hole meeting in Wyoming. This was interpreted by investors as evidence that Yellen was comfortable with their rate hike expectations.
The rand spent the better part of last week in the R13.14 to R13.30 range, as the markets awaited Yellen and European Central Bank chief Mario Draghi’s comments regarding their respective quantitative easing programmes and – for Yellen – rate hike schedule. Draghi on Friday said that the global recovery was improving, but warned of demographic challenges to growth. He flagged that in Europe and Japan “the consolidation of the recovery is at an earlier stage” versus that of the US.
Reezwana Sumad, an economic analyst at Nedbank, said that the rand had found support as the dollar continued to falter.
“The rand has managed to post steady gains, despite the local back drop, however, the extent of these gains has to not been commensurate with the gains posted by the majority of the other currencies against the dollar, and as a result the rand crosses against the majors have thus far been limited,” Sumad said. BMI Research, a subsidiary of Fitch, earlier this month said that the rand’s rally was nearing its end in the face of cooling market sentiment towards emerging markets currencies and a gradual shift towards monetary easing in South Africa. The lion’s share of the rand’s appreciation was behind it and after averaging R13.21 to the dollar in the year to-date, the group forecast the rand will average R13.03 against the greenback for the remainder of the year.
Analysts from Momentum SP Reid said that the structural position of the domestic unit would largely hinge upon the “perceived timing’’ on an US interest-rate hike by the Federal Open Market Committee.
“Towards the close of the past week, we indicated that the area at around R13.04 represented a realistic near-term target for the rand. The pace of improvement in the domestic unit was surprisingly brisk in the wake of the negative reaction in the dollar to the Jackson Hole comments. In the short term, the rand is marginally overbought,” Momentum SP said.