Rand softer as emerging market hype dies down

The rand retreated against the dollar in morning trade on Friday, in thin trade as the hype created around a resurgent emerging market story dies down.

“The rand has retreated to above the R14.00 level, as the mid-term knee-jerk seems to have run out of steam,” said Andre Botha, senior currency dealer at TreasuryONE.

“Looking at the market reaction as a whole, it mostly stuck to the script when investors predicted the outcome of the midterms and the possible market moves. We have seen emerging markets on the front foot with an initial reaction but the hype slowly died down,” he said.

Another event that stuck to the script was the US Fed that kept interest rates on hold as was widely expected, the trader said.

“The language from the Fed also did not waiver from the previous meeting with a December rate hike looking on the cards with gradual rate hikes next year. This hardly registered in the market as the fade in euphoria from the mid-terms was the main story.”

Botha said he expects a quiet day in the market as there are no significant events or data release out. “This usually means that the rand will stay in narrow trading ranges, and today could be a dull day as we head into that weekend.”

Bianca Botes, Corporate Treasury Manager at Peregrine Treasury Solutions, outlined the good and the bad of US politics this week. The US headed to the voting stations for mid-term elections, with Trump noticeably losing popularity among the US population.

The Democrats managed to gain control of the House of Representatives for the first time in 10 years, opening the door not only to policy reviews, but also placing a target on the US President’s back, Botes said.

“The dollar slumped leading up to the election outcome, as investors steered away from the greenback, but the mighty dollar is once again on the rise as treasury yields tick up alongside the currency.”

“Locally, we received confirmation that the national elections will be held during May 2019,” Botes said.

“While our political landscape remains largely unchanged, it is important to note that elections always contribute to market volatility and that the outcome of these elections will also drive certain economically positive or negative policy, depending on the winning party and their balance of power in parliament.”

Locally, Standard Bank PMI dropped once again to 46.9, indicating a slowdown in the private sector, while business confidence improved somewhat from 93.3 to 95.8 points. Mining, gold and manufacturing production fell by 1.8%, 19% and 1% respectively.

“The rand, alongside other emerging markets, pulled off a stellar performance this week, managing to dip below the R14.00/$ mark as risk appetite returned to the market on the back of the US mid-term elections. The rand lost some of it gains as we headed towards the end of the week, however it is still trading some 30 cents stronger against the greenback.”

Botes said that while there is not much to be positive about in terms of economic performance at the moment, the investment summit lead by president Ramaphosa indicated that South African business is determined to turn the economy around.

“International investors still view Africa as an investment destination, an opinion which was reinforced at the Africa Investment Forum in Sandton this week.”

Looking ahead, Botes said that mid-term election results will continue to be a factor.

“The key questions are how the Democrats will come to play in the trade war setting and whether there will be room to overturn some of the policies implemented by the Republicans in recent months.”

The rand is expected to continue its bumpy ride but, for now, the levels are great to get your hands on some foreign currency, the forex expert said.

“The local unit has kicked the day off at R14.15 and we expect it to trade between R14.00 and R14.27.”

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

  • Dollar/Rand: R14.20  (0.59%)
  • Pound/Rand: R18.48  (0.20%)
  • Euro/Rand: R16.10  (0.32%)

Read: Big increase in number of South Africans looking to take money out of the country

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Rand softer as emerging market hype dies down