'Rand wants to strengthen'

Johannesburg - While the rand is undervalued and wants to strengthen and given the right conditions can, this will be slow in coming while volatility persists.

This is the view of economist and market strategist from Econometrix Treasury Management, Russell Lamberti, who says the rand has been losing ground over the last two days in line with losses in US equities.

"Continued volatility can be expected at the moment. We are in a phase now where the direction from global equities is very significant and any normalcy is rand positive," explains Lamberti.

"Expect big daily ranges," he adds. Lamberti feels that the R9.40 per dollar level is a key one, and if it can close below this level it will be "significant" as the rand could then move below R9/dlr.

"This will be good for bonds," says Lamberti.

South African bonds have been following the movements of the rand over the last few days, with a senior bond dealer noting on Friday that "the rand is now quite important for the fixed income market".

"A low rand should lead the central bank to expedite some form of good news," he explains.

On Tuesday, the central bank again highlighted the weak rand as an inflation concern in its Monetary Policy Review. It explained that South Africa's balance of risks had changed now that the rand had weakened and oil had fallen. Oil had previously been a major inflation bugbear together with food.

SA's high import drive does not combine well with a weak rand when it comes to inflation.

The rand was last at R10.0503 to the dollar from an overnight close of R10.2452 as the Dow Jones Index lost a concerning 4.85% overnight. The rand has come off levels of R11.57/dlr on October 22 and headed back to the R9.50 mark, only to weaken again overnight.

Massive rate cutting action around the world is highlighting the extent of the recessionary conditions and deep-rooted growth fears, with this leading to risk aversion, which affects emerging market currencies like the rand.

- I-Net Bridge