The rand rallied to a six-month high on Wednesday, shaking off poor retail sales data as expectations of continued lower rates in the United States fed risk demand globally.
At 1500 GMT the rand was 0.93% firmer at R16.30 per dollar, its strongest since March 16, smashing through the R16.50 technical resistance barrier that analysts see as a likely catalyst for further gains.
The rand led the charge by emerging market currencies against the greenback as investors upped bets the Federal Reserve would signal an extended period of low lending rates at its meeting later in the session.
The currency’s gains come ahead of an expected lowering of local lending rates at Thursday’s monetary policy meeting, on top of the record 300 basis points drop this year.
“Following difficult, choppy, and illiquid market conditions in August, EM risk assets have generally been better-behaved, helped by the Fed’s announcement of a shift toward average inflation targeting,” said Phoenix Kalen of Societe Generale
“For South Africa, strong risk sentiment supports portfolio inflows, and reduces the risk that rate cuts would destabilise the currency,” Kalen said a note.
Bonds were a touch firmer, with the yield on the benchmark 2030 paper down 1 bps to 9.23%.
In the equities market, stocks dipped as data showed domestic retail sales for July slumped by more than expected adding to worries about a wobbly post-pandemic economic recovery.
Aggressive stimulus measures and easing of lockdown restrictions have helped the Johannesburg Stock Exchange’s main indexes bounce from a coronavirus-driven crash in March, with both the Johannesburg All-Share index and Top 40 index up more than 50% from a March 19 year low.
But the all-share index has struggled to top its year high of 59,104.61, which it hit on January 20.
Data on Wednesday showed retail sales fell 9% year-on-year in July following a revised 7.2% contraction in June. On a monthly basis sales fell 1.1%. A Reuters poll had predicted a 5% annual contraction..
The reading also comes as some major retailers have reported or predicted weaker sales.
“The recovery of this sector is expected to be protracted as many consumers have lost their jobs or endured salary cuts,” Investec economist Lara Hodes said.
Among the retail decliners, supermarket chain Shoprite Holdings fell 3.11%, while budget clothing retailer Mr Price declined 1.72% and upper-end fashion and food retailer Woolworths Holdings fell 2.48%.
The all-share index closed 0.3% weaker to 55,960 points, and the Blue-chip index was down 0.32% to end the day at 51,629 points.
The dip was also caused by buyers who “are currently sitting on the sidelines waiting for SARBS’ interest rates decision”, said Greg Davis, a trader with Cratos Capital