Rand battering continues into Monday

The rand continued to get battered in trade on Monday (13 June), losing further ground to the major currencies following a sell-off on Friday, as investors rushed to buy ‘safe haven’ dollars amid data that showed US inflation accelerated in May.

The rand relinquished all its recent gains, having traded from a strong point of R15.16 on Thursday last week – its best level since mid-April.

“Sell everything but the dollar” is resounding across trading desks as investors reprice the risk that the Federal Reserve hikes interest rates more aggressively than previously thought, Bloomberg reported.

Traders now see the Fed jacking up borrowing costs by 175 basis points by its September decision, which would mean at least one 75 basis-point move, it said. “The dollar has assumed the role of the global stagflation hedge with USD cash being one of the few financial assets offering returns,” George Saravelos, Deutsche Bank’s global head of currency research in London, wrote in a note.

The rand starts the week on the back foot, having wiped out all its recent gains on Friday, said Bianca Botes, director at Citadel Global. “This followed hotter than expected US inflation numbers. As a result, the market is positioning for faster hikes, in bigger increments, by the Fed.”

Treasury One said in a short note on Monday that the unexpected rise of 8.6% in the year-on-year US inflation number on Friday has seen a huge risk-off move in markets.

The rand starts the new trading week at R15.97, having lost 2.9% from Friday’s R15.50 opening level, it said, adding that markets are further being spooked by China, reimposing some Covid restrictions due to new infections in Beijing.

“Emerging market currencies are vulnerable at the start of the week as US Treasury yields rise and equities tumble. The rand will not escape this sentiment,” ETM Analytics said in a research note.

The rand traded at the following levels against the major currencies:

• Dollar/Rand: R16.07 (3.88%)
• Pound/Rand: R19.56 (1.16%)
• Euro/Rand: R16.80 (2.25%)

Bloomberg reported recently that the rand has been less volatile this year than a host of peers — including the lira, zloty and real — even as risk assets came under pressure amid rising global inflation and policy tightening, concerns of a slowdown in China, and Russia’s war with Ukraine.

The currency’s historic volatility versus the dollar has risen 63 basis points to 14.66%, the seventh-highest of the 23 developing currencies monitored by Bloomberg.

Read: The rand is undervalued right now – here’s where it is heading for the rest of the year: Nedbank