Rand lifts despite firmer dollar after Angela Merkel’s announcement

The rand was firmer against the dollar on Monday afternoon, despite the latter firming against the euro following German chancellor Angela Merkel’s announcement that she would resign as Christian Democratic Union of Germany (CDU) leader.

However, Merkel will stay on as chancellor until 2021, “when she will not seek re-election”.

The rand usually tracks the euro, but the local currency has become so oversold that it showed little reaction to its weakness on Monday.

FXTM analyst Jameel Ahmad said Merkel’s announcement was not the type of news that is expected to have macro-economic implications. “But it could impact the euro and we have seen the trend in the past where the rand can follow the trajectory of the EU currency.”

Earlier, the euro weakened to a two-month low after Merkel’s beleaguered government faced a leadership crisis following an election in the state of Hesse, in which the coalition partners suffered substantial losses. 

Still, the CDU won the majority in Hesse — which is home to the country’s financial capital Frankfurt — elections. Social Democratic Party of Germany (SPD) leader Andrea Nahles threatened to end the alliance if Merkel did not implement policies to bring back voters, Dow Jones Newswires reported.

The rand was also supported by a turnaround in local bonds, with the R186 benefiting from renewed foreign buying as offshore investors return to the market on the allure of recent higher yields.

At 2.55pm the rand was up 0.7% to the dollar at R14.4723, 0.89% to the euro at R16.466 and 0.76% to the pound at R18.552. The euro was 0.13% lower at $1.1378.

The benchmark R186 government bond was bid at 9.235% from 9.32%.

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Source: businesslive.co.za