Rand extends gains versus sliding dollar

The rand strengthened against the dollar on Monday, adding to strong gains last week as dovish comments by the Federal Reserve chair hurt the US currency.

At 1445 GMT the rand was more than 0.6% firmer at R13.86 to the dollar after earlier striking a session best of R13.83.

The rand fell more than 14% in 2018, partly weakened by US interest rate hikes which boosted the dollar, but it is up 3.5% since the start of 2019.

“The rand’s gains are mostly a weaker dollar story,” said Gerrit van Rooyen, economist at NKC African Economics.

Fed chair Jerome Powell said late last week that the US central bank would be sensitive to the downside risks that markets are pricing in, bolstering expectations of a slowdown in the pace of US interest rate increases.

Money markets have priced out a US rate hike this year and are even pricing in a small probability of a rate cut in 2020. The Fed raised rates four times in 2018, detracting from the appeal of emerging market currencies like the rand and Russian rouble.

South Africa-focused investors will scrutinise manufacturing data due later in the week for clues about the health of Africa’s most industrialised economy.

Economists polled by Reuters are betting that the South African economy will stage a gradual recovery, growing by 1.5% in 2019, after a 0.7% expansion last year. The economy expanded 2.2% in the third quarter, pulling out of recession.

On the stock market, shares ended lower, led by cigarette giant British American Tobacco (BATS) following a broker downgrade of the stock.

BATS lost 5.6% to R437.56, topping the decliner’s list on the benchmark index. Cowen analysts downgraded a clutch of tobacco stocks, including BATS, to ‘market perform’, citing falling volumes.

Overall, the blue-chip Top-40 index ended 0.7% lower at R45,81 and the broader All-share index lost 0.6% percent to R51,89.