Rand recovering, stocks falter on local economic pressure

South Africa’s rand stretched its recovery to a third straight session on Monday, climbing further off two-year lows hit last week as investors saw an opportunity to buy the currency cheaply while the dollar’s rally paused.

At 14:10 GMT the rand was 0.2% firmer at 15.21 per dollar, having opened slightly lower but firming throughout the session as a short-squeeze continued in the wake of last week’s large drop on data showing the economy contracting.

Technical indicators also suggested the rand, along with other emerging currencies, was oversold and due a small correction with much of last week’s panic over contagion from Argentina and Turkey easing.

“In the absence of clear-cut signals or direction, the USD-ZAR will likely remain largely range bound, although given the oversold nature of emerging market currencies, the potential to regain some resilience should not be underestimated,” said analysts at Investec.

The currency will however remain vulnerable to offshore events such as higher interest rates in the United States and the simmering trade spat between Washington and Beijing, which was stoked by President Donald Trump saying on Friday he was ready to slap tariffs on virtually all Chinese imports.

“The rand is the most sensitive emerging-market (EM) currency in the world and is used as a proxy trade in a risk-on or risk-off environment,” strategist at Nedbank Mehul Daya wrote in a note, adding that 15.02 could provide the next pivot point.

Bonds remained pressured by the overall weaker currency and elevated credit downgrade risk, with the yield on the benchmark 2026 paper up 10 basis points to 9.24%. 

Stocks were weaker, with the Johannesburg Stock Exchange’s Top-40 index sliding 0.52% to 50 570 points, and the broader All-Share index down 0.6% to 56 734 points.

Health group Netcare and fashion retailer Foschini led the decliners on the Top-40, both down around 3.5%.

General retailers, banks and grocers – the so-called SA Inc. stocks for their exposure to local economic conditions – were on the ropes.

South Africa’s economy has slipped into recession for the first time in nearly a decade, with data last Tuesday showing gross domestic product contracted for two quarters in a row, due mainly to a sharp fall in agriculture.

The general retailers index was down 1.56%, while the banking index was fell 0.64% on the day.