Rand trades softer on fears of Evergrande failure in China
THE RAND OPENED the week on the back foot again yesterday, after closing stronger on Friday, as the markets turned highly risk sensitive with fallout over China's largest property group, Evergrande, taking another turn.
On Friday, the rand firmed strongly, closing 1.4 percent stronger at R14.87 to the greenback as US bond yields firmed and the dollar backtracked on its recent strength.
But Chinese property giant Evergrande's shares were suspended yesterday, triggering fears of its potential collapse, a move that would trigger serious shock waves throughout global markets.
The company said it was going to make “an announcement containing inside information about a major transaction” which could see it selling a majority stake to a rival real estate firm in order to cover its mounting debt.
The rand thus closed 0.32 percent lower to R15.02 to the dollar, shunning the easing of lockdown measures in South Africa and last week's robust domestic data.
TreasuryONE's currency strategist Andre Cilliers said the rand was trading a touch softer as concerns over Chinese property developer Evergrande resurfaced. “Investors have turned cautious once again after trading in Evergrande shares was suspended this morning,” Cilliers said.
“We wait to see if the rand can break the R14.85 level to open further strength to R14.75, while a break above R14.97 will bring R15.10 back into play.”
The rand lost ground against a strong US dollar, shedding 3.7 percent monthon-month in September, providing a tailwind for JSE-listed companies with foreign earnings.
The rand currently averages R14.58 to the dollar this year after last year's R16.46 to the dollar, and is likely to remain much stronger this year than last, not experiencing the same length and depth of risk off.
Investec chief economist Annabel Bishop said while the rand typically sees a stronger period in the fourth quarter and the first quarter each year, this will likely not be the case for the fourth quarter of 2021.
Bishop said the domestic currency certainly was likely to be highly volatile and continue to see periods of marked strength and weakness indefinitely.
“That is, so long as the fundamentals of the currency do not deteriorate markedly, the rand will likely remain on a long-term depreciation trend, although cheeringly the chance of November credit rating downgrades has now reduced,” she said.
Bishop, however, said the rand could strengthen into November and December unless the US Federal Reserve tapers earlier than expected.
“Looking forward, the rand forecast could be too strong for the expected case if risk-off persists into the fourth quarter of 2021 and the first quarter of 2022, which, while unusual from a seasonal perspective for the first and last quarters of a year, is not impossible either.”