Rand hit as in­vestors lose risk ap­petite for emerg­ing mar­kets

The Star Early Edition - - BUSINESS REPORT - Ka­belo Khu­malo

THE RAND yes­ter­day ex­tended its losses against ma­jor cur­ren­cies, mir­ror­ing the tum­ble of emerg­ing mar­kets cur­ren­cies as in­vestors lost risk ap­petite for as­sets vul­ner­a­ble to a tighter global mone­tary pol­icy en­vi­ron­ment.

An­a­lysts from Mo­men­tum SP Reid said while in­vestors were pay­ing care­ful at­ten­tion to the yield en­vi­ron­ment, in re­cent ses­sions, the fo­cus of the mar­ket had grad­u­ally drifted to­wards the up­com­ing earn­ings sea­son. “In our as­sess­ment, short-term tech­ni­cal in­di­ca­tors on the green­back will now ex­hibit grad­ual im­prove­ment.”

Mo­men­tum SP said the rand was likely to weaken fur­ther in the next ses­sion or two. It yes­ter­day touched R13.6278 be­fore re­cov­er­ing to R13.5692 by 5pm.

Against the pound, the lo­cal unit was R17.4253 af­ter reach­ing a two-months low of R17.54.

The tum­bling of the rand was fol­lowed by other emerg­ing cur­ren­cies such as the Rus­sian rou­ble and the Turk­ish lira, who both lost more than 1 per­cent on the day.

Tif­fany Pol­lock, an an­a­lyst at Mer­chant West, said that the de­ci­sion by Pub­lic Pro­tec­tor Busi Mkhwe­bane to not op­pose a court chal­lenge against her bind­ing pro­posal call­ing for a change of man­date of the cen­tral bank had lit­tle ef­fect on the rand.

“This seemed to have caused quite a big re­ver­sal in the rand in the morn­ing, but it then weak­ened dra­mat­i­cally in the af­ter­noon. The rand against the dol­lar is now marginally above the 200-day mov­ing av­er­age and its weak­ness seems coun­try-spe­cific rather than broad­based emerg­ing mar­ket weak­ness,” Pol­lock said.

The hawk­ish tone taken by de­vel­oped mar­kets in re­cent weeks has seen a ma­jor sell-off in emerg­ing mar­ket cur­ren­cies and bonds. Last week alone saw out­flows in emerg­ing mar­kets bond funds of $70 mil­lion (R9.38 bil­lion) in com­par­i­son with in­flows of $1.8bn in the week that ended on June 28.

The cap­i­tal out­flow from emerg­ing-mar­ket dol­lar debt was sparked by com­ments last week from cen­tral bankers in the UK, Canada and the eu­ro­zone, sug­gest­ing that their economies had re­cov­ered enough for them to con­sider step­ping back from their easy mone­tary poli­cies.

Wikus Fursten­berg, a port­fo­lio man­ager at Old Investment, said that ner­vous­ness about the near-term out­look for very loose mone­tary pol­icy forced bond­hold­ers of stale long po­si­tions to re­con­sider.

“Lo­cally, we sus­pect that sig­nif­i­cant mar­ket weak­ness was mostly the re­sult of for­eign in­vestor sell­ing prob­a­bly based on the re­al­i­sa­tion that all is not well down south af­ter all,” Fursten­berg said.

To­day the Bank of Canada is widely ex­pected to raise its in­ter­est rates by 25 ba­sis points (bps) to 75 bps, this would be its first in­ter­est hike in al­most seven years. Also to­day’s fo­cus will be on the semi-an­nual tes­ti­mony to Con­gress by US Fed­eral Bank chair­per­son Janet Yellen, who is ex­pected to shed more light on US rates pol­icy.

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