Rand gains; analyst says it had looked undervalued

The rand gained strongly on Tuesday, with one analyst saying it had looked undervalued after year-to-date losses and citing support from rising prices for precious metals, a key South African export.

At 1550 GMT, the rand traded at R17.85 against the dollar.

Danny Greeff, a financial market analyst at ETM Analytics, said sentiment towards emerging markets had been lifted by softer-than-expected US retail sales.

“The rand is outperforming, however, owing to its stretched undervaluation after a dismal year-to-date performance. All the while, gold, platinum, and palladium markets have also seen healthy gains today, providing further support,” Greeff said.

Major local economic data points this week that could influence rand trading are local inflation data out on Wednesday and an interest rate announcement on Thursday.

Analysts polled by Reuters are predicting inflation to further decline to 5.6% in June from 6.3% in May, putting it back within the central bank’s 3% to 6% target range for the first time since April 2022.

The majority of economists expect no change in the South African Reserve Bank (Sarb) repo rate on Thursday, but a significant minority are predicting a further 25 basis points (bps) increase to 8.50%.

The Sarb has raised rates at its last 10 monetary policy meetings to try to bring inflation back to target, in a hiking cycle that started in November 2021.

“Although the market has been paring bets on an extended rate-hike cycle in SA, there is still a strong chance that the Sarb hikes by 25 bps to keep the rand on the front foot,” Greeff said.

The Johannesburg Stock Exchange’s All-share index closed down 0.2% on Tuesday. South Africa’s benchmark 2030 government bond was firmer, as the yield fell 12 basis points to 10.325%.