The rand targeted a move below R14.00 against the dollar in mid-morning trade on Wednesday, as markets took direction from the US mid-term elections.
The local unit moved below the key level – its best performance in more than six weeks.
- Dollar/Rand: R13.99 (-0.81%)
- Pound/Rand: R18.39 (-0.47%)
- Euro/Rand: R6.05 (-0.34%)
“Waking up this morning it would not be amiss for you to take a double take when looking where the rand is trading at the moment,” said Andre Botha, senior currency dealer at TreasuryONE.
“The rand has enjoyed the early news from the US where it looks like the Democrats will take the House of Representatives while the Republicans will keep the Senate. As expected, the news was a little US dollar negative and the rand has caught some of the tailwinds of that,” he said.
“With the US mid-terms on the forefront of events today, we expect choppy trade as news and results get released.
“This means that the rand will be choppy as the main driver of the market at the moment is the US dollar. We believe that the wave of sentiment will be in the rand’s favour and there is a real possibility that the rand tests the R14.00 level, which opens up a bit more room on the downside.
“We believe the overall bias is for the rand to make a charge at the R14.00 level.”
Bloomberg reported that as the results of the US midterm elections became clearer, investors began reassessing opportunities in emerging markets amid a slew of headwinds from President Donald Trump’s trade policies to the end of easy money.
An MSCI index of emerging-market currencies rose as the dollar stayed on the back foot, with a divided Congress emerging as the most likely result after Republicans retained control of the Senate and the Democrats looked poised to wrest control of the House.
While investors are likely to welcome the removal of the uncertainty surrounding the vote, focus is now shifting to possible policy gridlock amid an escalation of the US-China trade friction and further removal of stimulus by the Federal Reserve.
“We are looking at a consolidation in EM and further gains in the Mexican peso and South African rand,” said Saed Abukarsh, the co-founder of Dubai-based hedge fund Ark Capital Management.
“The fund holds “small” wagers that seek to profit from gains in the peso and rand.
“The House/Senate vote was priced in. The real cat in the hat is the Fed, and the risk is that we could see the back end of the curve dip again,”said Abukarsh.
“The risk is that the Fed may begin to rein in their language on potential future hikes in 2019. The risk is that the Fed takes a strong look at the housing numbers and begins to make that a focal point.”