Rand strength­ens 2%, may breach R13 bar­rier

The Star Early Edition - - BUSINESS REPORT - Ka­belo Khu­malo

THE RAND ended last week 2 per­cent stronger against the dol­lar, flirt­ing with breach­ing the phys­i­o­log­i­cal R13 bar­rier as the lo­cal unit rode the wave of weaker-than-ex­pected US in­fla­tion and re­tail sales num­bers and Min­is­ter of Fi­nance Malusi Gi­gaba’s 14-point plan to ig­nite in­clu­sive growth.

How­ever, the rand’s volatil­ity was ex­pected to con­tinue this week with all eyes on the re­lease of South Africa’s in­fla­tion num­bers and the de­ci­sion of the SA Re­serve Bank on its benchmark repo rates, both ex­pected later this week.

The rand in early trade on Fri­day was trad­ing at R13.22 to the green­back but strength­ened to a high of R12.99 in in­tra-day day trade af­ter US in­fla­tion and re­tail sales fig­ures came in lower than ex­pected be­fore cor­rect­ing to R13.04 by 5pm.

The US head­line in­fla­tion de­clined to 1.6 per­cent June, from 1.9 per­cent in May, while its core in­fla­tion – strip­ping out food and en­ergy prices – re­mained un­changed at 1.7 per­cent. Re­tail sales num­bers in the US also de­clined by 0.2 per­cent in June, fol­low­ing a de­crease of 0.1 per­cent in the prior month.

Kamila Ka­plan, an econ­o­mist at In­vestec, said the strength of the rand was sup­ported by the mar­ket in­ter­pre­ta­tion of a less hawk­ish US Fed­eral Re­serve, fol­low­ing Fed chair­per­son Janet Yellen’s tes­ti­mony to Congress and dis­ap­point­ing US in­fla­tion data re­leased on Fri­day.

“(Fri­day’s) re­lease of the US Con­sumer Price Index (CPI) for June dis­ap­pointed ex­pec­ta­tions, with core CPI de­cel­er­at­ing to 1.7 per­cent year on year, the low­est since Jan­uary 2015. The rand ap­pre­ci­ated by over 2 per­cent since Mon­day to R13.03 against the dol­lar on Fri­day, re­al­is­ing the sec­ond best weekly spot re­turns out of 24 emerg­ing mar­ket cur­ren­cies.”

Ka­plan ex­pected the rand to trade in a range of R12.55 to R13.55 to the dol­lar, R14.40 to R15.40 against the euro and R16.45 to R17.45 against the pound this week. The weak US in­fla­tion num­bers de­flated hopes that the Fed would hike in­ter­est rates in Septem­ber.

The lo­cal unit’s re­nais­sance be­gan tak­ing shape last Wed­nes­day as the dovish mon­e­tary pol­icy out­look taken by the US Fed al­le­vi­ated pres­sure on emerg­ing mar­kets, with the rand fi­nally span­ning a run of losses since the ANC pol­icy con­fer­ence rec­om­mended na­tion­al­is­ing the Re­serve Bank.

David O’Don­nell, a se­nior for­eign ex­change dealer at Mer­chant West, said the rand’s sharp re­trace­ment last week was a clear dis­play of the lo­cal cur­rency’s abil­ity to move ag­gres­sively on in­vestor sen­ti­ment and the Gi­gaba blue­print sup­ported the rand’s strength.

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