Positive bias towards rand remains intact despite trade concerns

The rand was firmer on Wednesday afternoon as positive sentiment towards the local currency remained intact, following the extensive loan deals negotiated with China on Tuesday.

Eskom received $2.5bn in funding from the Chinese state bank, in a deal that will help relieve pressure on the state-owned enterprise, long considered a key risk to the fiscus.

The dollar firmed against the euro ahead of President Donald Trump’s meeting with European Commission president Jean-Claude Juncker, after initially losing out to the euro.

The meeting is being held in a bid to defuse escalating trade tension between the US and the EU, with Trump earlier threatening to place higher tariffs on all car imports to the US emanating from the eurozone.

The euro was supported by buoyant sentiment on upbeat German data with the Ifo business climate index edging slightly lower, but still showing resilience in the face of probable greater trade tension.

The market is now eyeing the release of US second-quarter GDP on Friday, with the market pricing in an increased number from the previous quarter’s 2%.

A better number is sure to support the dollar and put emerging-market currencies on the back foot.

Schroders analyst Craig Botham said a stronger dollar reduced global import demand by simultaneously raising import prices for all countries apart from the US. At the same time, it raised the cost of credit, particularly in economies where dollar-denominated debt was prevalent.

“A stronger dollar is therefore a clear headwind to emerging-market growth,” he said.

At 3pm the rand was at R13.1922 to the dollar from R13.2855, at R15.434 to the euro from R15.5221 and at R17.3644 to the pound from R17.4618.

The euro was at $1.1699 from $1.1682 after earlier firming to $1.1675.

Local bonds were firmer with the R186 bid at 8.63% from 8.72% and the R207 at 7.37% from 7.44%.

US bond yields have risen in July from June’s lows. The 10-year treasury was last seen at 2.9417% from 2.95%.