The rand reached a three month high in morning trade on Thursday (4 July), dipping below R14 to the dollar due to weak data out of the US, and a slight uptick in local business confidence.
The currency is currently moving at the whims of international markets, tracking fellow emerging market currencies as expectations that the US central bank will lower lending rates returned following a batch of gloomy data in the world’s biggest economy.
At R13.98 to the dollar, the currency is at its strongest level since April.
Internationally, the US is celebrating its Independence Day, with markets closed as a result.
However, data out on Wednesday showed that the continued trade war between the US and China has had an adverse effect in the US, leading to fewer jobs in the service sector, while new order for manufactured good also declined in May for the second straight month.
The greenback slipped as investors sought higher yielding assets.
“The rand is defying the current rhetoric by Trump as he accused China and the Eurozone of currency manipulation, which normally would equate to some uncertainty in the markets which is normally bad for EM currencies,” said Andre Botha, senior dealer at TreasuryONE.
With the US out of action on Thursday, Botha expects a day of low liquidity which is normally seen as a day of sideways trading, “but should an event hit the market it could lead to huge moves on account of the low liquidity”.
“One reason for the rand and EM performance this morning could be the growing speculation that the Fed and ECB will cut rates sooner rather than later and this could see yield-seeking behaviour being in the order of the day,” Botha said.
“The common saying is that the trend is your friend and we see the rand testing the R14.00 level but with the US out of the market major moves are unlikely with no major data releases or events scheduled for today.”
Locally, the rand has also been boosted by a trade surplus reported for May and a slight improvement in the local business confidence index.
The index, measuring business sentiment, rose to 93.3 in June – up from 93 in May, the South African Chamber of Commerce and Industry said. However, overall confidence remains low, having been under 95 for the past five months (where 100 is neutral).
The fresh strength for the rand comes one month after the currency topped R15 to the dollar following poor Q1 GDP data and warnings from ratings agencies over the country’s credit rating.
By 10h30 the rand was trading at these levels against major currencies:
- Dollar/Rand: R13.98 (-0.58%)
- Pound/Rand: R17.59 (-0.46%)
- Euro/Rand: R15.78 (-0.47%)