Rand hit as investors lose risk appetite for emerging markets

THE RAND yesterday extended its losses against major currencies, mirroring the tumble of emerging markets currencies as investors lost risk appetite for assets vulnerable to a tighter global monetary policy environment.

Analysts from Momentum SP Reid said while investors were paying careful attention to the yield environment, in recent sessions, the focus of the market had gradually drifted towards the upcoming earnings season. “In our assessment, short-term technical indicators on the greenback will now exhibit gradual improvement.”

Momentum SP said the rand was likely to weaken further in the next session or two. It yesterday touched R13.6278 before recovering to R13.5692 by 5pm.

Against the pound, the local unit was R17.4253 after reaching a two-months low of R17.54.

The tumbling of the rand was followed by other emerging currencies such as the Russian rouble and the Turkish lira, who both lost more than 1 percent on the day.

Tiffany Pollock, an analyst at Merchant West, said that the decision by Public Protector Busi Mkhwebane to not oppose a court challenge against her binding proposal calling for a change of mandate of the central bank had little effect on the rand.

“This seemed to have caused quite a big reversal in the rand in the morning, but it then weakened dramatically in the afternoon. The rand against the dollar is now marginally above the 200-day moving average and its weakness seems country-specific rather than broadbased emerging market weakness,” Pollock said.

The hawkish tone taken by developed markets in recent weeks has seen a major sell-off in emerging market currencies and bonds. Last week alone saw outflows in emerging markets bond funds of $70 million (R9.38 billion) in comparison with inflows of $1.8bn in the week that ended on June 28.

The capital outflow from emerging-market dollar debt was sparked by comments last week from central bankers in the UK, Canada and the eurozone, suggesting that their economies had recovered enough for them to consider stepping back from their easy monetary policies.

Wikus Furstenberg, a portfolio manager at Old Investment, said that nervousness about the near-term outlook for very loose monetary policy forced bondholders of stale long positions to reconsider.

“Locally, we suspect that significant market weakness was mostly the result of foreign investor selling probably based on the realisation that all is not well down south after all,” Furstenberg said.

Today the Bank of Canada is widely expected to raise its interest rates by 25 basis points (bps) to 75 bps, this would be its first interest hike in almost seven years. Also today’s focus will be on the semi-annual testimony to Congress by US Federal Bank chairperson Janet Yellen, who is expected to shed more light on US rates policy.