Rand dodges mixed signals to rise in early trade

South Africa’s rand advanced early on Friday, shaking-off negative news on the economy from earlier in the week and fading hopes of a quick bounce back in global growth, with yield-hungry investors supporting demand for the currency.

At 0645 GMT the rand was 0.62% firmer at R16.82 per dollar against an overnight close of R16.92, with volatile trading tilting in the currency’s favour despite a huge growth contraction on Tuesday that was set to roil sentiment.

Africa’s most advanced economy shrank 51% in the second quarter due to the coronavirus restrictions. Data showed the current account had swung into deficit, and July mining and manufacturing remained in contraction, albeit at a slower pace.

Offshore, weekly jobless claims in the United States hovered at still-high levels, casting a shadow over hopes for a quick economic rebound in the world’s no.1 economy. And on Thursday the European Central Bank (ECB) dashed hopes of fresh stimulus.

The net result was a turbulent session for emerging market currencies, with the rand among the few to pull firmer. Traders said the still-high yield, or carry, offered by the rand was sustaining demand.

“Not all emerging market currencies have been able to capitalise to the same extent as the rand, suggesting sentiment is somewhat mixed. Technically, there appears to be a lack of downside impetus,” said economists at ETM Analytics.

“It is unlikely that we see the pair break out of the R16.60-R17.00 range for the week today, with nothing in the way of a clear catalyst on the cards.”

Bonds also firmed, with the yield on the benchmark 2030 government issue down 2.5 basis points to 9.310%.