Rand strength continues on the back of Biden election

The rand hit a more than eight-month high against the dollar on Monday (9 November), as markets cheered Joe Biden’s election as the US president on hopes that a calmer White House could boost world commerce and that monetary policy would remain easy.

Democrat candidate won the race to become the next US president, defeating Donald Trump following a nail-biting vote count after Tuesday’s election. Biden won more than 73 million votes, the most ever for a US presidential candidate.

Reuters reported that the rand was trading at its strongest since 5 March, which was before the Covid-19 pandemic knocked the local economy deeper into recession.

“Although the rand has benefited significantly over the course of the most recent sessions, given the extent of the recent gains, we are likely to encounter both profit-taking on short US dollar positions and fresh dollar buyers at the current levels,” Nedbank said in a research note.

Although the rand’s technical indicators were suggesting an oversold scenario, “indications are that it could extend its gains further towards the R15/dollar level”, the Nedbank analysts noted.

According to Bianca Botes, executive director at Peregrine Treasury Solutions, the Joe Biden win saw risk assets gain momentum, with markets banking on more stability, while a divided congress will still ensure low-interest rates for longer and potential fiscal stimulus.

She added that the local markets could be impacted by the European Central Bank (ECB) which is expected to make a statement on Monday.

“We will be keeping an eye on Christine Lagarde from the ECB today as she makes her statement, while lockdown situations in Europe and the UK remain on the radar,” she said.

Biden positivity

President-elect Joe Biden will deliver a boost to global stock markets and the US and world economy, said Nigel Green, chief executive and founder of deVere Group.

“Although a Biden win was pretty much priced-in by the markets, his victory will eliminate uncertainty – which they loathe – and they will rally further as a result,” he said.

“Even possible legal challenges from Trump will be dismissed by investors who will instead be focusing on the renewed certainty and stability that a Biden White House will bring, including in key areas such as trade tensions with China; keeping the US in the World Health Organization; re-signing the Paris climate agreement; and abiding by other international agreements and long-standing international allies.”

However, Green said that Biden will need to work with the Republican-led Senate to secure fiscal stimulus to bolster the economy. This means he might struggle to get the $3 trillion wanted by Democrats, but some package is likely, he said.

“This will buoy the markets and would have investors think about a broader-based economic recovery – rather than a narrower, tech-heavy one. As the world’s largest economy, sustainable, long-term growth in the US will have a positive ripple effect for the world economy.”

In addition, the Biden win without full Senate support means less risk of regulation and higher corporate and personal taxes, which will give more oxygen to the markets and economy, he said.

Stellenbosch University’s Bureau for Economic Research (BER) said that under a Biden win, South Africa stands to benefit.

Two major implications would be the subdued dollar – as a result of the aforementioned stimulus package – as well as the boost for China, which is a major trading partner for South Africa.

Regarding the Biden-driven stimulus, the BER said that “all else being equal, this would support the US and global economic recovery in 2021, with positive spill-overs to South Africa”.

The rand was trading at the following levels against the major currencies:

  • Dollar/Rand: R15.56 (-0.26%)
  • Pound/Rand: R20.53 (+0.10%)
  • Euro/Rand: R18.50 (-0.16%)

Read: After more than six years of warnings – South Africa has hit its fiscal cliff

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Rand strength continues on the back of Biden election