Rand holds up amid global tensions, weak economy

THE rand has held the line over the past month amid global trade and conflict tension and despite an economy under pressure with continued Eskom rolling black-outs.

The rand traded close to the R14.50 to the dollar level yesterday before recovering to R14.40 as the US consumer price index was below market expectations and US Treasury yields went lower in trade.

Yesterday by 5pm it traded at R14.3421 to the dollar, up 5 cents from the same period on Tuesday.

In the past seven days the rand has gained 1.35 percent and is now back, a bit stronger than the levels it was at 30 days ago.

The currency’s stable performance has given credence to speculation that Reserve Bank governor Lesetja Kganyago will maintain the repo rate steady today when he announces the first decision of the Monetary Policy Committee this year.

But there has been concern that nuances in yesterday’s markets could disrupt the rand’s performance in the days ahead making the currency spin from being the best performing emerging market (EM) to being the worst on the waning of confidence in the spirit of the US-China trade deal and concerns about local issues ahead of the budget speech by President Cyril Ramaphosa.

Economists said the calm markets into December, which were beneficial for risky assets, could turn sharply around.

Andre Botha, a senior dealer at TreasuryOne, said while the rand thrived when the bond market looked attractive due to high yields, “unfortunately, the opposite is also true in times where the market is skittish of risk.”

He said: “Where trade deals could go south or missiles are fired and geopolitical tensions rise, the rand also outstrips its peers, but in the opposite direction”.

Botha said while local factors, like load-shedding, likely had not played a massive part in the rand since the start of 2020, it would not be surprising if local issues started coming to the fore as South Africa headed to the budget speech next month which “we see as the first major hurdle for the South African economy this year”.

“Due to excess liquidity from the US with the Fed injecting liquidity into the market, the logical choice is to place this in high yielding assets and the rand will be a benefactor of that.

“Coupled with the yield, South Africa is used as a proxy by the market for EMs due to the ease of entering the South African market. We normally find that when the market is in a risk-taking phase that the rand outstrips its EM peers,” he said.

Investec economist Annabel Bishop said in a note yesterday that much was riding on cessation in the US-China trade conflict, which might well subside this year as the US elections approached, in order to aid a second term for President Donald Trump.

“A global recession is still unlikely this year, but a Moody’s credit rating downgrade is less unlikely,” she said.