Rand recovers slightly despite poor global backdrop

The rand was relatively calm in midmorning trade on Monday‚ strengthening slightly against the dollar‚ off a very low base.

“The rand is the most sensitive [emerging-market] currency in the world. [It is] used as a proxy in risk-on/off trade‚” tweeted Devin Shutte‚ head of investments at The Robert Group. “As a result‚ it trades a massive 18% of SA GDP in daily forex turnover (while SA trade is less than 1% of global trade volume). Explains why external factors often outweigh fundamentals.”

The US has threatened to impose another $200-billion worth of tariffs on Chinese goods‚ upping the ante in a trade dispute between the two largest economies. Previously‚ both countries imposed $50-billion worth of tariffs on each other’s goods.

The rand has been caught in the middle of the trade furore‚ with weak domestic data also adding pressure to the value of the currency. The local currency weakened to a two-year low in the past week‚ as foreigners dumped local shares and bonds after SA’s economy slipped into a technical recession for the first time in a decade.

The rand dropped to R15.68 against the dollar at one stage last week‚ as foreigners sold a net R6.2-billion worth of local shares and R1.7-billion worth of local bonds. The rand recovered to R15.17 against the greenback by midmorning‚ but the weaker trend remained‚ raising inflation worries‚ as the local economy contracts.

Rand Merchant Bank analyst Nema Ramkhelawan-Bhana expects the Reserve Bank to increase interest rates by 25 basis points at its September or November meeting‚ breaking ranks with a dominant view that expects the bank to hold fire for the rest of the year.

The rand also faces a potential challenge from rising interest rates in the US‚ which could boost the value of the dollar. The US’s nonfarm payrolls report last week indicated strong wage growth for August‚ which is regarded a key indicator for rising inflationary pressures.

At 10.46am‚ the rand was at R15.1717 to the dollar‚ from R15.2269 at its previous close. It was at R17.5492 to the euro‚ from R17.5867‚ and at R19.6261 to the pound‚ from R19.6830. The euro was at $1.1568‚ from $1.1549. The yield on the benchmark R186 bond‚ meanwhile‚ rose to 9.205%‚ from 9.13%.