Rand firmer as current account surplus adds to global risk boost

The rand firmed on Thursday after the country recorded a surprise current account surplus and demand for emerging market currencies was boosted by strong jobs data in the United States that encouraged risk-taking.

At 1545 GMT the rand was 0.57% firmer at R16.96 per dollar, breaking through the key R17.00 technical resistance level for the first time since June 16, as it rallied to a 3-week best in a risk-on session that lifted emerging and commodity currencies.

The advance, which carried the currency to a session-best R16.87, brought gains in the past two sessions to more than 2%, although the outlook remains fragile following weak local economic growth data and a resurgence in COVID-19 infections.

On the day, South Africa recorded its first current account surplus in 17 years in the first quarter of 2020, a surplus of 1.3% of gross domestic product from a deficit of 1.3%, as the trade balance more than doubled.

That added to cheer for emerging currencies after US nonfarm payrolls increased by their most since 1939 and comments from the Federal Reserve indicating a continuation of its massive asset-buying program, which saw the greenback slide.

Analysis remain cautious, however, about the path ahead for the volatile rand which has in recent trading swung between R17.00 and R17.50, threatening to break either way.

“For South Africa, which is likely to lag well behind global recovery, the eventual withdrawal of QE will exacerbate currency weakness,” said chief economist at Investec Annabel Bishop.

“The domestic economy continues to fail at fiscal consolidation, with substantial credit rating downgrades now forthcoming down the line on the back of its huge jump in government debt projections.”

Bonds were slightly firmer, with the yield on the benchmark 2030 government issue down 2 basis points to 9.25%.

The Johannesburg Stock Exchange (JSE) was higher, taking its cue from global indices as both emerging and developed market bourses rose on strong US jobs data and firmer crude oil prices.

The benchmark FTSE/JSE All Share Index closed up 1.54% to 54,617 points while the Top 40 Index was up 1.49% to end at 50,310 points.

The rally was broad based with all major sector indices – banks, resources, mining and industrial – showing strong gains.