Rand holds steady despite dollar weakness

The rand was broadly steady on Tuesday morning, failing to capitalise on the weakness of the dollar, which has been a key driver of currency markets in recent days.

The dollar came under added pressure after the US and Mexico reached a preliminary deal on trade following months of wrangling. The outcome implied less demand for the dollar, which doubles as safe-haven currency in times of uncertainty.

The dollar lost ground against a basket of currencies, but more so against the euro, a scenario that usually translates into gains for the rand.

But this time around, the rand’s reaction was fairly muted, suggesting a degree of consolidation after staging a big recovery from its worst level of above R15 to the dollar, hit earlier in August.

“Could some sensibility be returning to the world after a dire period for emerging markets? I can’t say for sure but it feels that way now that the European summer is about to end and we start to see interest filter back into markets,” Standard Bank trader Warrick Butler said in an e-mailed note to clients.

“The rand has certainly behaved, for the most part, since the ill-fated Asian move to R15.7000 two weeks ago.

Earlier in August, the rand was caught up in the global risk-off scenario, which resulted in big bond outflows, before subsequently stabilising. While exporters tend to benefit from a weaker rand environment, importers such pharmaceutical companies feel the squeeze.

Pharmaceutical companies are currently lobbying the government to soften the blow of a weaker rand by increasing the annual single exit price, which the department of health sets for drug companies.

At 10.49am, the rand was at R14.1382 to the dollar, from R14.1694. It was at R16.5388 to the euro from R16.5476 and at R18.2460 to the pound from R18.2638.

The yield on the benchmark R186 was at 8.55%, little changed from 8.865% at its last settlement on Monday.