Rand stages mild recovery amid pickup in global risk appetite

The rand improved slightly in midmorning trade on Tuesday, helped by a semblance of stability in global markets, which encouraged investors to tiptoe back into risky assets.

For the time being, markets appeared to brush aside trade war concerns, which had contributed to a big drop in the value of the rand in the second quarter, raising inflation concerns.

Nedbank Corporate and Investment Banking analysts Reezwana Sumad and Walter de Wet wrote in an e-mailed note to clients that while the rand was oversold, its recovery depended on the dollar, which has benefited from its safe-haven flows.

The rand lost 16% against the dollar in the three months to June, in its biggest quarterly drop since September 2010, according to the Iress data.

The sharp rand weakness came amid the bond and equity flows, not helped by the batch of underwhelming local economic data.

Along with high international prices, the weaker rand has contributed to record high increases in petrol prices, the latest of which will kick in on Wednesday.

Markets will on Thursday digest the minutes of the US Federal Reserve’s most recent meeting, to get a sense of how the policy markets view the outlook on rates in the context of the fears about a trade war.

To date, the US Fed has been confident about the US economic outlook after raising interest rates by cumulative 50 basis points since the start of 2018 and two more expected by the end of the year.

Higher US rates have previously strengthened the dollar at expense of the rand and other emerging-market currencies via bond outflows in particular.

In the past, SA and other emerging markets have benefited from the era of a low interest-rate environment in developed markets, which encouraged the so-called carry trade — where money is borrowed in low interest-rate environments and invested in currencies that offer higher returns.

Local bonds held broad steady in midmorning trade, with the yield on the benchmark R186 fetching 8.86% from 8.88% at its last settlement.

At 10.41am, the rand was at R13.7287 to the dollar from R13.8307. It was at R16.0104 to the euro from R16.1011, and R18.1062 to the pound from R18.1765.

The euro was at $1.1662 from $1.1638.