Rand gets reprieve from recovery in global markets

The rand enjoyed something of a reprieve on Friday, with the price action suggesting the recent selling of stocks and bonds in emerging markets, in particular, may have gone too far.

The rand weakened within a hair’s breadth of the symbolic R14 to the dollar at one point on Thursday before pulling back in line with the broad recovery in assets deemed risky, notably shares.

The weaker dollar also helped take pressure off the rand, though not enough to shake off steeper losses for the quarter. The rand has lost about 16% against the dollar since March, according to Iress data, raising concerns about the outlook on inflation.

Fuel prices are set to rise for the fourth time since the start of the year, when the Central Energy Fund announces the adjustment later in the day.

For the most part, external drivers have hurt the rand over the past three months, with a batch of disappointing local economic data adding to negative sentiment.

Foreigners have sold a record net $5bn worth of local bonds in the quarter, according to Bloomberg, as sentiment towards emerging markets soured. Over the same period, net equity flows also dried up compared to the first quarter.

The expectations of higher interest in the US had earlier drawn capital to the dollar at the expense of the rand and other emerging-market currencies. The developments prompted a number of central banks in emerging markets, including Turkey, Indonesia and Argentina, to raise interest rates to put a floor under their weakening currencies.

At 10.57am, the rand was at R13.7211 to the dollar from R13.7688 on Thursday. It was at R15.9863 to the euro from R15.9303, and R18.0774 to the pound from R18.0085. The euro was at $1.165 from $1.157.