Rand slips slightly after racing to six-week best

The rand was slightly weaker on Thursday morning, taking breather after racing to a six-week high against the dollar.

Receding fears of a global trade war have contributed a great deal to the recovery of the rand, though recent pledges by China and several other countries to invest in SA have added positive momentum to the currency.

On Tuesday, China pledged to invest $14.7bn in SA, but gave no details in this regard. Lured by relatively low inflation and relatively attractive local bond rates, foreigners have been slowly coming back to the market, helping the rand in the process.

In the second quarter, the local currency was caught up in the whirlwind of poor sentiment towards emerging markets, weakening to within a hair’s breadth of R14/$ before recovering.

Over the past week, the Reserve Bank predictably kept rates on hold, noting rising inflationary pressures. SA has had four increases in fuel prices in 2018 and one more could still be in store for August, according to Automobile Association.

The scheduled policy meeting of the European Central Bank (ECB) could generate price action in the afternoon when its president, Mario Draghi, announces a rate decision in the afternoon.

“The ECB’s decision today is an interesting hurdle for our markets. While a hike is largely expected after the summer in 2019, any hawkish move could see the dollar weaken even more on the back of a resurgent euro,” Rand Merchant Bank analyst Gordon Kerr said.

“At the moment, the only major risk seems to be if the bank pushes forward its rate hike expectations from December 2019 to a few months earlier. This, however, shouldn’t have too much of a bullish effect on the euro given its recent rally. As such, we attach little risk to today’s event.”

At 11.03am, the rand was 0.76% weaker to the dollar at R13.2078 from R13.1086, at R15.4714 to the euro from R15.3746, and at R17.4058 to the pound from R17.2959.

South African bonds were steady at firmer levels, with the yield on the benchmark R186 fetching 8.61%, unchanged from its settlement on Wednesday.