Rand’s strong run expected to continue despite ongoing unrest

The rand continues to gain momentum in trade on Monday (9 September), as increased risk appetite is driving flows towards emerging markets, said Bianca Botes, treasury partner at Peregrine Treasury Solutions.

“The local unit is trading some 0.7% stronger since markets opened this morning, with the rally expected to deepen should the environment remain favourable to risk appetite,” Botes said.

Expected stimuli by both the Fed and the European Central Bank (ECB) will be conducive to the drive stronger, she said.

The ECB is expected to announce “a fresh salvo of stimulus, which may further embolden traders to look for yield across emerging markets”, Bloomberg reported.

More than 80% of economists surveyed by Bloomberg predict ECB president Mario Draghi will announce the central bank’s resuming bond buying, and forecasters see the deposit interest rate falling to a record minus 0.5%.

If those estimates are proven right, developing-nation stocks, bonds and currencies will probably extend a rally that was sparked earlier this month by the prospect of a meeting between US and Chinese officials to discuss trade issues, Bloomberg said.

Meanwhile, Federal Reserve chairman Jerome Powell pushed back against perceptions that the US economy was ’tilting’ into a recession, while leaving the door open to further interest-rate cuts to keep the country’s record economic expansion on track.

“The most likely outlook for our economy remains a favourable one with moderate growth, a strong labor market and inflation moving back up close to our 2% goal,’’ Powell said

Investors fully anticipate US central bankers to cut interest rates by a quarter-percentage point when they next meet next week in Washington.

In late afternoon trade on Monday, the rand traded at the following levels against the major currencies:

  • Dollar/Rand: R14.71  (0.63%)
  • Pound/Rand: R18.20  (0.03%)
  • Euro/Rand: R16.26  (0.39%)

The local unit shrugged off continuing unrest in the country’s major cities. Police minister Bheki Cele said that local authorities are cracking down on the perpetrators of a series of xenophobic attacks that left at least 12 people dead.

The police arrested 639 people so far, Cele told reporters Monday in Johannesburg, the nation’s economic hub where unrest flared again a day earlier. He conceded there was “anti-foreign sentiment” within the country, after earlier insisting the cause of the violence was criminal activity.

The clashes began after a South African taxi driver was shot dead, allegedly by a suspected Nigerian drug dealer, in the capital, Pretoria. Scores of foreign-owned shops were looted and torched in the ensuing violence. The attacks spread to Johannesburg last week, leaving 10 people dead and more than 50 shops and several vehicles destroyed, Bloomberg reported.

After a brief lull, the violence resumed in Johannesburg on Sunday. Police used stun grenades and rubber bullets to battle protesters armed with knives and sticks seeking to drive African migrants out of the city. At least two more people died. Calm had been restored by Monday morning, according to the police.

President Cyril Ramaphosa said lawlessness is a crime against the country’s prosperity and stability as a nation, and those who want to upset public order must expect to face the gravest impact of the law.

The president condemned the resurgence of public violence.

“Government will not allow sporadic lawlessness and violence to disrupt the safety and livelihoods of millions of South Africans and the majority of foreign nationals in our country who are law-abiding and have the right to conduct their lives and businesses in peace,” he said.

“Lawlessness, injury and death inflict a great psychological and economic cost that lasts long after victims are buried, arrests are made and streets are cleared. This cost holds back our country and undermines all the efforts we are making to grow a South Africa that offers opportunity to all who live in it.”

Read: Police warn of new ways hijackers are targeting South African drivers

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Rand’s strong run expected to continue despite ongoing unrest