Rand at strongest in 16 months as risk appetite returns

The rand broke below the R14/$ mark for first time in 16 months on Monday, stretching last week’s rally, which was supported by bond inflows.

Foreigners have bought a net R8.2bn worth of SA bonds over the past week, the most since mid-december, boosting the value of the rand.

The relative strength in the rand backs the view that the record-low interest rates meant to help the economy recover from Covid-19 are likely to remain in place for the foreseeable future.

Nedbank analysts said in a note to clients that global risk appetite, ultra-loose monetary policy in the developed markets and fiscal stimulus in the US are likely to benefit the rand in the short to medium term.

The rand, which is a barometer of sentiment towards emerging markets, moved swiftly against the dollar on Friday after the closely watched US nonfarm payrolls report missed estimates, catching the markets off guard. The US created 266,000 jobs in April, against the market expectation of 1-million jobs.

The markets have been on the lookout for signs of inflation as the US economy, supported by fiscal and monetary policy, picks up pace after the Covid19-induced setback.

The disappointing US jobs report means that the US Federal Reserve is unlikely raise interest rates, which tend to divert capital from emerging markets.

For now though, SA offers relatively higher rates compared with most developed markets, which are attracting foreign capital via bond inflows.

The yield on the benchmark R2030 SA bond at 9.02% compares favourably with equivalent US treasury yields, which stand at 1.58%.

Higher commodity prices are also benefiting the local currency, analysts say.

At the height of the Covid-19induced volatility just more than a year ago, the rand plunged to record lows of R19.34/$. It has made a remarkable comeback, trading at R13.99/$ at 11.20am on Monday, up 0.40% on the day.

Against the euro, the rand has gained 0.39% to R17.00/$, but lost 0.45% to R19.71/£ against the pound.