Bulls beef up the rand

THE rand continued to strengthen yesterday, again breaking the key barrier of R8 to the US dollar.

Bullish investor sentiment on the international economy and favourable reaction to Sunday's announcement that Gill Marcus will take over from Reserve Bank governor Tito Mboweni appeared to be behind the currency's resurgence.

The primary factor behind the move appeared to be pegged to positive feeling about the global economy, said John Cairns, a currency specialist at RMB. "The rand is really just a reflection of global sentiment."

As investors have become more bullish in a global economic recovery, emerging-market currencies have benefitted.

"All emerging markets have firmed and the rand has firmed along with them," said Azar Jammine, director and chief economist at Econometrix.

The rand has performed particularly well during a period in which many observers have begun pointing to "green shoots" of a rebound from the global economic crisis. "We've been in a bull market for the rand, and for the global markets in general, since March," Cairns said.

Still, he worried that the rand was currently overvalued, as its recent strength might not be grounded in the fundamentals of the economy.

"Underlying structural weaknesses in the unit remain, like the current account deficit. It was about 7% last year and could be about 6% of gross domestic product this year. Can the country continue to fund that?" he said.

"The rand is stronger now than it was before Lehman [Brothers] went bankrupt. Is that really justified in a global economy that's much weaker and in an environment where there's much less risk taking?"

The continued firming against the dollar and other international currencies follows about two weeks of weaker performance during which the rand hovered at about R8.3/$ at one point.

In the longer term, Cairns said, four main factors would affect the prospects for the rand: the timing and pace of the global economic recovery, concerns internationally about potentially severe dollar weakness, a merger of Indian telecom giant Bharti with MTN and the attitude of the Reserve Bank.