Rand regains nearly 3% to the dollar amid improving global backdrop

The rand pulled back further from the brink in midmorning trade on Tuesday, regaining as much as nearly 3% against the dollar, backing the argument that the sharp sell-off in the past two sessions may be have been overdone.

The strong comeback mirrored the improving global backdrop, with the Turkish lira — which was the epicentre of global market angst — staging a modest recovery from record lows.

Investors tiptoed back into risk assets, brushing aside political and economic concerns in Turkey.

The improving sentiment played out in relatively stable equities, while perceived safe-haven assets such as the yen were moderately weaker.

Though predisposed to shifts in global sentiment because of its status as one of the highly liquid emerging market currencies, some analysts called into question the quantum of the drop in the value of the rand over the past sessions.

“While the rand is usually one of the worst-hit currencies in such periods of risk off, its weakness still seems out of line with those of other emerging-market risk currencies,” Rand Merchant Bank analysts John Cairns and Kim Silberman said in an e-mailed note to clients on Monday.

Before recovering, the rand had plunged by the most in about a decade, crossing R15 to the dollar for the first time in two years, sparking inflation worries.

But Reserve Bank deputy governor Daniel Mminele tempered expectations of a potential increase in interest rates in the near term, telling Bloomberg News on Monday that evidence of inflationary pressures would guide the Bank’s approach on policy.

Source: businesslive.co.za