The rand was weaker against the dollar on Friday morning but looks set for its fourth week of gains, after stimulus efforts in the eurozone and hopes of a truce in the US-China trade war lifted sentiment this week.
The rand reached its best level in more than a month during the course of the week. Risk appetite improved as the markets were expecting the European Central Bank (ECB) to cut its key interest rate and introduce stimulus efforts. The bank cut its deposit rate by 10 basis points to -0.5% and announced quantitative easing at a monthly pace of €20bn from November 1.
“The market was waiting for the ECB to deliver, and they didn’t disappoint. So much so that they have pretty much given the market forward guidance for the next three years with seemingly open-ended intervention through asset purchases … suffice it to say that the euro can now be classified as the funding currency du jour,” Standard Bank currency trader Warrick Butler said.
Lower interest rates in the eurozone will provide additional room for the SA Reserve Bank to cut rates, through the benefit afforded to the rand. The rand would benefit from increased interest in SA bonds as the higher yields on local debt are more attractive to investors.
“The continued lower yields in developed countries only entices more investment into emerging-market, high-yielding assets,” Butler said.
Global sentiment was also boosted as the US and China move to bring an end to the protracted trade war. On Thursday, US President Donald Trump said he would prefer that the two economic superpowers reach a “whole deal” but said he would not rule out the possibility of an interim deal. Earlier this week, China exempted 16 US products from additional tariffs while the US postponed a 25%-30% tariff on $250bn worth of Chinese imports as a “gesture of goodwill”.
“Talks that some parts of the US may have entered recession due to a worsened trade war may have helped in President Trump softening his aggressive rhetoric against China and lifting investor sentiment,” London Capital Group senior economist Ipek Ozkardeskaya said.
At 09.30am, the rand had firmed 0.33% to $14.5454/$, while it was flat at R16.1523/€ and had weakened 0.31% to R18.0489/£. The euro had firmed 0.37% to $1.1104.
Gold added 0.18% to $1,501.7/oz and platinum 0.46% to $954.23. Brent crude was flat to $60.36 a barrel.