Resilient rand rattles doubters as it keeps gaining

There is a reason SA’s currency is called “the rattler”. While many an investor expected the rand to buckle in the face of rising US Treasury yields and prospects of a more aggressive pace of Federal Reserve hikes, the currency has done the opposite. It has just posted its fifth weekly gain out of the past six, causing pain for those who have bet against it.

“In a risk-off and volatile environment, the rand used to be one of the weakest currencies,” said Milan-based investor Roberto Bagnato at Immobiliare Quadronno, a market veteran of more than 40 years. “It was easy to short then because the SA Reserve Bank has a tradition of making no intervention to defend the currency.” 

Now, the rand is no longer following the rules of the emerging-markets playbook, he said. 

The rand is sometimes referred to in currency market circles as “the rattler”, because of its habit of snapping back hard in the opposite direction to a big move. When it comes to explaining its current resilience, here are some of the best reasons put forward by traders:

Yield hunt

“US rates look to spike higher and quicker than the market expected, ownership there declines too as rates sell-off,” said Warrick Butler, the Johannesburg-based head of foreign exchange trading at Standard Bank in a note to clients. The bank holds a long dollar position, which was stopped out after the rand strengthened through the 15.21 mark.

“These dollars have to be put to use somewhere and it generally doesn’t find its way into the equity markets. Those dollars have to find a home and high-yielding assets are sought out. Yes, this includes the rand,” he said.