Rand comes within 9c of R14/$ as carry trade unwinds

The rand had climbed above R16 to the euro and flirted with R14 to the dollar on Tuesday afternoon, in a global sell-off of risk assets prompted by the US-China trade conflict.

A combination of announcements last week by the US Federal Reserve and European Central Bank of tighter monetary policy, and the imposition of additional tariffs by the US on China, have led to a resurgent dollar, which was at a six-month high to the euro on Tuesday.

Global liquidity was drying up as a result, leading to an unwinding of the so-called carry trade, said Nedbank Corporate and Investment Banking analysts. Carry trade refers to the practice of borrowing money in a low interest-rate environment in order to seek higher yields elsewhere. Given the current trend of portfolio outflows, the publication on Thursday of current-account data is likely to be more closely watched than usual.

On Monday, Trump threatened to impose additional tariffs on Chinese imported goods worth up to $200bn. This is over and above the $50bn worth of Chinese goods that will be subject to tariffs from July.

China has promised to retaliate, with analysts saying the market is increasingly pricing in a deceleration in global economic growth as a result.

The rand’s losses on Tuesday outstripped that of its emerging-market peers. The relative liquidity of the rand when compared to similar currencies is often cited by analysts as a reason for the local currency’s volatility.

At 3.04pm, the rand was at R13.832 to the dollar from R13.6458, R15.9779 to the euro from R15.8612 and R18.2156 to the pound from R18.0734. The euro was at $1.1551 from $1.1624.

The benchmark R186 bond was bid at 9.21% from 9.06%, and the R207 at 7.85% from 7.735%.