Rand firms below R19/$ as power cuts ease

The rand strengthened below 19 to the US dollar for the first time in three weeks on Wednesday, as a weakening greenback and an easing of rolling power cuts boosted the currency.

The rand firmed more than 1% at R18.975/$ , its strongest level since May 16, before retreating to R19.12/$ at 1748 GMT.

“The short-term strength comes from severely oversold conditions supported by some softening of the US dollar and a slight uplift in key export commodity prices,” said Shaun Murison, senior market analyst at IG.

DailyFX analyst Warren Venketas told Reuters that lower stages of power cuts are playing an important role in bringing the country back on track in terms of business activity and investor confidence.

The rand lost 7% in May amid record deep power cuts and US allegations that South Africa had supplied arms to Russia last year, pushing the currency as low as R19.9075/$ last week and leading to fears it would breach R20/$.

“The fact that the rand has pulled back more against the dollar than other EMs could be down to the fact that the rand was disproportionally undervalued against its (emerging market) peers and a bit of rebalancing was warranted,” said Andre Botha, senior dealer at TreasuryONE.

South Africa managed 0.4% growth in GDP for the first quarter and dodged a recession, data showed on Tuesday.

Investor outlook mostly remains bleak as the rolling blackouts show no signs of fully abating. A business confidence survey published on Wednesday dropped to its lowest level in three years.

On the stock market, the Top-40 index rose about 0.3%, while the broader all-share index closed almost 0.4% higher.

South Africa's local benchmark 2030 government bond also strengthened, with the yield down 3.5 basis points at 10.930%.

Reuters