Rand continues mild recovery despite jitters caused by China and US

The rand brushed off mixed signals from equity markets on Tuesday afternoon and was firmer against major global currencies, as market jitters over the trade dispute between the US and China resurfaced.

The rand had weakened to about R14.70/$ overnight, amid reports that the US was gearing up to impose further sanctions on China should trade talks in November fail to produce results.

The strength in the rand came in spite of earlier pressure on the euro, which the local currency often tracks. Eurozone GDP came in at 1.7% in the third quarter, slightly lower than economists’ expectations of 1.8% — and a sharp drop-off from the 2.2% growth previously.

“This was the weakest reading in four years and poses a serious obstacle to the European Central Bank’s (ECB’s) desire to normalise rates at the start of 2019,” said BK Asset Management MD Boris Schlossberg. Slower monetary policy tightening in the eurozone could benefit emerging-market currencies.

At 3pm the rand was 0.78% firmer against the dollar at R14.603, 0.75% to the euro at R16.6103 and 1.05% on the pound at R18.6334. The euro was flat at $1.1374.

Local news was downbeat, with third-quarter unemployment rising to 27.5% from the second quarter’s 27.2%, but analysts said international factors were firmly at play.

There aren’t many obvious sources of support for the rand and the currency will remain under pressure as China cuts down on stimulus and the US raises interest rates, Citadel Investment Services chief economist Maarten Ackerman said at a client event on Monday night. About 90% of moves in the rand were driven by investors’ views on the dollar and what happens in China, he said.

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