Rand stabilises as focus turns to global markets

The rand was relatively stable on Thursday morning as the focus returned to overseas markets, where the euro stood out against the dollar amid speculation that the European Central Bank (ECB) could soon announce plans to exit its stimulus measures.

The receding political concerns have also put a floor under the euro, which by default pressured the dollar, thus taking pressure off the rand, which earlier in the week reeled from the shock local GDP figures.

The local economy contracted by a more than expected 2.2% in the first quarter, prompting a selloff in local assets, which reflected in the weaker currency and higher bond yields.

“With the US dollar giving back a large portion of its gains since the end of May, some positive sentiment and stability have returned to emerging market currency markets in general,” said Deon Kohlmeyer, analyst at Rand Merchant Bank.

The rand and local bonds were recently caught up in the whirlwind of poor sentiment towards emerging markets, which played out in net equity and bond outflows in May in particular.

But relative calm has since returned to the emerging markets, after several central banks raised interest rates to fend off the effect of a strong dollar on their currencies.

India raised interest rates by 25 basis points on Wednesday, joining Turkey, Indonesia and Argentina, which have recently tightened their monetary policies.

Local bonds held broadly stead in early trade, with the yield the benchmark R186 bond holding at 8.65% from 8.66%.

At 10.28am, the rand was at R12.7135 to the dollar from R12.7118, R15.0310 to the euro from R14.9696, and R17.1138 to the pound from R17.0532. The euro was at $1.1824 from $1.1775.