This is why investors are backing the soaring rand

The rand’s 30% gain against the dollar since the height of the pandemic has outstripped emerging-market peers — and the rally may not be over yet.

SA’s currency has recovered all its losses since it slumped to record weakness in April 2020, and then some. Strong commodity prices and the global search for yield should support the narrative for further gains in coming months. Domestic fiscal metrics — though still far from healthy — are improving along with terms of trade, while the government’s crackdown on corruption is also fuelling positive sentiment.

The rand extended its rally on Tuesday, advancing 0.3% to R14.0040 per dollar by 4.17pm in Johannesburg and bringing its gain in May to 3.5%.

It’s becoming easier to back SA’s currency, and this is why:

Bond investors return

After record outflows from SA’s bond market in the first four months of the year, last week’s disappointing US jobs numbers heralded a reprieve. Foreign investors bought a net R5.2bn of SA government debt on Friday, the biggest in inflow since November, as the move lower in treasury rates gave new impetus to the search for yield. Together with a healthy trade surplus fuelled by rising commodity prices, those inflows could be rand-supportive in coming months.