Rand leaps to 4-month best as risks ease, Fitch holds fire

South Africa’s rand rallied to a new four-and-half-month peak on Wednesday as lingering optimism over a US-China trade deal, technical factors and a ratings reprieve from Fitch combined to boost the ailing economy’s currency.

At 1600 GMT the rand was 0.85% firmer at 14.26, its firmest level since July 31, compared to an opening at 14.41.

Late in the session Fitch said it affirmed both the long-term foreign and local currency debt ratings at “BB+” with a negative outlook, warning that a downgrade could be triggered by government failure address ballooning debt fast.

Read: SA says Fitch reprieve will focus efforts on bringing down debt

Earlier, the currency had eked out gains as investor appetite toward risk and emerging currencies was soothed by hopes that the two economic superpowers would strike a deal.

On Monday Washington said it would reduce some tariffs in exchange for what US officials said would be a big jump in Chinese purchases of American farm products and other goods.

“It’s been a steady grind lower for the rand since US markets opened and that’s down to a technical break below 14.30, that saw some stop-losses triggered,” said senior dealer at Standard Bank, Oliver Alwar, referring to the dollar/rand graph.

“There’s also some decent exporter interest as we head into year-end,” he said. “But due to the low liquidity I’d say most of the momentum is still coming from trade deal optimism.”

“These are critical levels, with support at 14.20 and 14.10. It looks like it wants to test lower but because of the weak economic fundamentals we see it staying around these levels.”.

Government bonds were firmer, with the yield on the benchmark 2026 instrument down 1.5 basis point at 8.285%.

On the bourse, stocks rose, led by Sasol as it continued to ride Tuesday’s gains after the energy and chemical company said its embattled Lake Charles chemicals project (LCCP) was increasing production rates, easing investor concerns over the project.

Sasol’s LCCP in Louisiana, United States is costing billions of dollars more than initial estimates and its problems have led to the resignation of both of the company’s joint chief executives.

On Tuesday it said ethylene production rates are approximately 85 – 90% of nameplate capacity and are increasing following the successful replacement of the acetylene reactor catalyst.

Shares in Sasol closed 6.35% firmer to R324.97, a near five-month high.

The Top-40 Index was up 0.92% to 51 462 points, while the broader All-Share Index rose 0.77% to 57 767 points.

Mobile operator MTN Group gained 1.37% to R88.14 after saying that its mobile money service will go live in January in South Africa, allowing customers to send, receive, save money and pay for goods using their mobile phones.

Read: SA says Fitch reprieve will focus efforts on bringing down debt