‘BULLETPROOF’ RAND IS THE WORLD’S TOP EMERGING MARKET CURRENCY SO FAR THIS YEAR
JOHANNESBURG - The rand has reclaimed its position as the best-performing emerging-market currency this year after being knocked off the top spot during last month’s bout of volatility.
It was trading at R14.10/$, R19.56/pound and R16.69/ euro on Friday at lunchtime.
A burgeoning trade balance and ample dollar liquidity are fueling the rebound and prompting traders to take bearish bets off the table, bringing its year-to-date to gain to around 4.2 percent.
Since falling to a fivemonth low on August 19 amid speculation the Federal Reserve may start scaling stimulus sooner than expected, the South African currency has advanced eight percent against the dollar, double the gain of Brazil’s real.
“At our morning briefing, the local unit was described as a rattlesnake and bulletproof,” Nema Ramkhelawan-Bhana, a strategist at Rand Merchant Bank in Johannesburg, wrote in a client note.
“It sounded rather like an episode of Mad Max. Yet, the metaphors are apt in the face of the rand’s unrelenting strength.”
South Africa’s current-account surplus reached a record in the second quarter as elevated commodity prices boosted exports, while imports moderated as the economy struggled to emerge from a contraction.
Meanwhile, an
International Monetary Fund Loan and additional Special Drawing Rights, resulted in a flood of dollars held by the central bank, which it has to sterilise by buying rand in the forward market, leaving lenders with a surplus of dollars.
As a result, the cost of borrowing the local currency against the greenback for one year in the swap market climbed to 105 basis points this month, more than triple the five-year average. That’s made it “awfully expensive” to fund long-dollar positions against the South African currency, said RamkhelawanBhana.
The premium of options to sell the rand versus those to buy the currency over the next month, known as 25-delta risk reversal, has narrowed to two percentage points, the lowest in a year. – BLOOMERG NEWS.