Rand holds below R15/$ amid speculation on future of US stimulus
The rand was fairly flat on Thursday morning, but held below the R15/$ handle, a sharp about-turn from R15.30/$ a week ago, which was the weakest level since March.
Analysts have said SA’s currency is likely to be volatile in the weeks ahead as investors await the timeline for the reduction of US monetary stimulus, which has supported currencies that offer relatively higher returns.
US Federal Reserve chair Jerome Powell is expected to provide clues when he speaks at the Jackson Hole event on Friday. There is concern that the highly transmissible Delta variant of Covid-19 could lead to a delay in the tapering of the Fed’s monthly $120bn bond buying stimulus programme.
“The currency has benefited from a strong external balance and improving public finances for much of this year. While the rand might gain some temporary support if, as we expect, we see a return of the global reflation trade, the sweet spot for SA’s currency has likely passed,” said Tilmann Kolb, analyst at UBS Global Wealth Management
“The next step globally is for a gradual withdrawal of stimulus, growth momentum in China has peaked, and SA’s overall weak fiscal position makes for a difficult backdrop in the coming quarters.”
The rand, which is regarded as proxy of sentiment towards emerging markets because of its highly tradable status, was relatively flat at R14.96/$ in early trade. However, it still 11% stronger year on year.
Elsewhere, the equity markets were weaker in Asia, suggesting a degree of profit-taking after a positive week in the region so far this week. US stock futures dithered in early trade, after the S&P 500 closed at record highs.
Commodity prices, to which SA’s economic fortunes are tied, were moderately weaker. The spot price of platinum shed 0.73% to $991.20/oz and palladium shed 1.40% to $2,395.50/oz.
Commodity markets have also been volatile in recent weeks, shaken in part by stronger dollar and the concern over the health of global growth given the fast-spreading Delta variant.
Source: businesslive.co.za