Rand firmer but volatility picks up as risks loom

The rand was firmer against major global currencies on Friday afternoon, on track for its second week of gains against the dollar.

The rand’s one-week implied volatility, however, was at a one-month high, Bloomberg data showed, putting it at a level it was last at when the country awaited the results of SA’s national polls on May 9.

While local markets are closed on Monday, the week ahead is a busy one, seeing both local inflation data on Wednesday, and a US Federal Reserve monetary policy announcement.

Even if the Fed is dovish, gains for the rand could be limited, given geopolitical risk and slowing global growth, as well as expectations that the Reserve Bank may also cut rates soon, said Peregrine Treasury Solutions corporate treasury manager Bianca Botes in a note. “With severe fluctuations in the rand, short-term strength should be used as a buying opportunity as biases still lean towards a weaker rand by the end of 2019.”

The state of the nation address (Sona) is due on Thursday, with President Cyril Ramaphosa expected to announce plans regarding on how to reignite economic growth, as well as the future of state-owned enterprises.

At 2.42pm, the rand had firmed 0.51% to R14.7933/$, 0.83% to R16.6306/€, and 0.89% to R18.6803/£. The euro had fallen 0.31% to $1.242.

Failing an improvement in the global risk environment, the rand will wander aimlessly around a mid-point of R14.80/$, steered by sentiment towards domestic challenges, said Rand Merchant Bank analyst Nema Ramkhelawan-Bhana in a note.

The rand has found some support this week from a rising gold price, which has pushed to a 2019 high. A higher gold price provides support for the rand, as the precious metal is a key foreign exchange earner for SA. Spot gold was last seen 5.53% higher at $1,351.42/oz, with platinum adding 2.35% to $810.66.

The forces behind gold’s aggressive appreciation revolve around geopolitical tension in the Middle East, ongoing US-China trade tension, and rising expectations that the Fed will cut interest rates, said FXTM analyst Lukman Otunuga.

“With these key fundamental drivers straining investor confidence and souring appetite for riskier assets, gold is set to shine as investors sprint to safe-haven assets.”

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