Stronger pound knocks rand

• SA’s currency stable against dollar, but weakens against pound after May’s surprise British poll announcement

British Prime Minister Theresa May’s surprise announcement of a general election on June 8 put pressure on the rand on Tuesday as the pound surged against the dollar on the news.

With May’s Conservative Party way ahead of the Labour Party in the polls, the market is betting on a Conservative victory and a soft Brexit.

After initially weakening on the news, the UK currency gained more than 1.5% to $1.2753 in late afternoon trade, the best level since November 2016.

The rand fell 1.50% against the pound to a weekly low of R17.01/£.

The rand was stable against the dollar, consolidating at about R13.35/$, which was 60c firmer than the levels to which it fell after President Jacob Zuma’s firing of Pravin Gordhan as finance minister and the subsequent downgrade announcements by sovereign debt-ratings agencies S&P Global and Fitch.

SA’s currency broke through R13.30/$ to R13.2875 after the JSE’s close, despite iron-ore prices sliding to a five-month low on a market view that firmer Chinese GDP growth would be difficult to sustain in the year ahead. Chinese GDP for the first quarter came in 6.9%, higher than expectations.

The prices of JSE shares with exposure to iron ore were sharply lower after the ironprice fell to a five-month low.

Kumba Iron Ore’s price tumbled 8.45% to R170.86 and Anglo American closed 3.29% lower at R190.17.

There was nothing clearly substantial driving the rand’s recent strength against the dollar, said Iquad Treasury analyst Tony van Dyk. “Markets have been fairly quiet around the Easter holiday period, with low volumes traded.”

Van Dyk said that the rand had benefited from a generally positive environment for emerging markets. This was while the US currency had been under pressure over the short term, he said.

The rand weakened to R13.9472/$ in the wake of the first downgrade by S&P Global on April 3. That the South African currency did not weaken through the R14/$ level was interpreted by the market as a positive sign of resilience.

“We could see the rand give back some of its gains, but the rand would probably trade in a range between R13.25 and R13.45 for now,” said TreasuryOne dealer Andre Botha.

The rand gained 2.46% against the dollar last week, after losing 7.9% in the week that Gordhan was fired. It lost a further 2.5% in the following week, but had since been strengthening.

Rand Merchant Bank chief currency strategist John Cairns said general dollar weakness and thin trade had helped the rand on Monday.

But, he said, the dollar could enjoy a mild recovery on Tuesday, which would restrict the rand. Even so, said Cairns, the general trend was expected to be for the rand to continue to strengthen, despite the many domestic issues.

“We remain surprised by the rand’s remarkable strength. We should all rightly be asking what the rand is doing here. But the market can remain irrational longer than anyone can remain solvent and our take is that it is not worth trying to fight against the flood,” said Cairns.

Nedbank Corporate and Investment Banking analysts said the rand had another resilient session on Monday.

“Liquidity was tested, but the local currency nevertheless managed to record further gains,” said Nedbank.

MARKETS HAVE BEEN FAIRLY QUIET AROUND THE EASTER HOLIDAY PERIOD, WITH LOW VOLUMES TRADED