Rand eyes R13/$ as EM sentiment turns positive

Cape Town - The rand, together with other emerging market currencies, has been firmly on the front foot, with the local unit strengthening 2% against the greenback.

By 15:52 the local unit was trading 1.7% firmer against the US dollar at R13.09 after touching a high of R13.07 earlier in the session.

"A break here could see the ZAR potentially test R13.00," said TreasuryOne's Wichard Cilliers.

In the absence of big political and economic news, the rand's run the last week is driven largely by improved emerging market sentiment, after US President Donald Trump made no mention of currency or protectionist policies during his meeting with Japanese Prime Minister Shinzo Abe.

Recent Chinese and Japanese trade data also supported emerging market sentiment, said NKC Africa Economics in a research note.

The rand has already broken the R14.00 level against the euro, trading at R13.89 by 15:20, while also gaining against the pound, last trading at R16.32/£.

John Cairn, currency strategist at RMB, said in addition Trump's talk of tax cuts last week has boosted support for US stocks and in turn spurred on sharp dollar gains.

"This is proving to be a rand positive environment, although moves are much more evident in the crosses, notably EUR/ZAR, where the dollar gains are not constraining," said Cairns.

TreasuryOne however warned that the risk of an internal issue in South Africa is still prevalent for the rand, most notably a possible Cabinet reshuffle which could see Finance Minister Pravin Gordhan lose his position.

External shocks also still persist in Trump himself, possible credit rating downgrades and any decision by the US Federal Reserve.