Stronger rand tests R13.50 mark to the dollar on improved global prospects

THE RAND surged to its highest levels in 26 months during early trade yesterday, testing the R13.50-mark against the US dollar on prospects of a global economic recovery.

However, the domestic currency retreated slightly and was 0.05 percent higher to R13.60 against the greenback at 5pm after the dollar inched higher following upbeat US jobs numbers

Private businesses in the US hired 978 000 workers in May, the highest reading since June 2020 as the labour market continues to recover amid a rapid reopening of the US economy.

The positive risk sentiment on the rand had kept the greenback on the back foot and saw US bond yields decline before the dollar’s slight recovery.

TreasuryONE currency strategist Andre Cilliers said a sustained break of the R13.50 level could see the rand target R13.35 in the short term.

“The rand continues to outperform its emerging markets peers as commodity prices remain elevated and good resource-based exporter dollars flood the local market,” Cilliers said.

The current rand levels are almost unbelievable, considering where it traded a year ago when the country was deep in the Covid-19 pandemic and its associated lockdown restrictions.

The rand has gained 20.1 percent against the dollar over the past 12 months, 11.8 percent over the past 3 months, and 3.8 percent over the past month.

President Cyril Ramaphosa even commented on the rand performance yesterday, saying it was at its best levels since 2019. He said it was outperforming the currencies of South Africa’s major trading partners, aided by high commodity prices.

“Our favourable position as a commodity producer should attract capital inflows and boost the fortunes of domestic producers as well as retailers,” Ramaphosa said.

Citadel Global director Bianca Botes said the key main themes driving the rand strength yesterday were the weak US dollar and the commodity supercycle.

Botes said the record stimulus deployed by the US government to fight the Covid-19 pandemic over the past year had led to excess liquidity in the capital markets.

She said this drove investors to assets such as the rand regardless of the underlying risks.

“The dovish stance by the Fed continues to plague the dollar, assisting the rand to gain momentum,” Botes said. “And while many analysts argue that we will not enter a super cycle, the strong commodity process are beneficial to the rand, and other commodity driven currencies.

“When comparing commodity cycles with the local currency, the correlation between strong commodity prices and a strong rand cannot be disputed.”

Botes concurred that there was likely to be a correction in the rand in an environment of tightening of global monetary policy and the looming risks ahead.

“While many articles elude to a stronger rand, closer to levels of R11, many analysts agree that the rand should be trading closer to the R15 (level) as we approach the third and fourth quarters,” she said.

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