Rand strug­gles to claw back losses

The Star Early Edition - - BUSINESS REPORT - Ka­belo Khu­malo

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.

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