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Cape Town – The rand resumed its rally on Tuesday as yield players focused their attention on risk currencies.
It was trading 1.45% stronger at R13.27 against the dollar, 1.52% firmer at R17.11 against the pound and 1% stronger at R14.88 against the euro at 08:50 on Tuesday.
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“Last week’s scare about a potential early hike from the Fed has disappeared, allowing the search for yield to resume,” said RMB analyst John Cairns. “All risk assets have done well, with US equities leading the way to record highs. Pressures are not strong and one day does not make a trend, but the bias appears to have shifted back to ongoing rand gains.
“Risk currency gains have, quite remarkably, been so strong that talk has already emerged over possible intervention is some markets, most notably in Brazil,” he said. “This comes barely six months after emerging bank central banks were intervening to stop currency losses.
“But don’t worry too much about intervention,” he said. “The Sarb (Reserve Bank) is not going to get involved and even any other emerging market central bank intervention is unlikely to be strong enough to stop the generalised emerging market risk-currency trends.”
With oil perking up above $47.00 a barrel and bets on a US rate hike below 50%, the rand followed the rouble stronger on Monday afternoon, explained Adam Phillips of Umkhulu Consulting.
“At one stage it touched just below R13.25/$, so my weekly support of the R13.20 level is also going to be tested no doubt,” he said.
“Today will all be about US data, with consumer prices, industrial output and housing starts leading the way as to where the direction of the dollar might go,” he said.
“Unless we get some good data out of the US today then the trend of staying long high yielding currencies will continue today,” he said. “It is almost as though the yield players wait for the importers to come in and top up. Then, it is a straight battle between them and exporters to see who can sell dollar first.”
Cairns said that prior to the crisis, the US CPI figure was the second most important global data point, coming in only behind payrolls.
“Its importance has dwindled in recent years and should not cause major ructions today, but the risks remains that US inflation will eventually be pushed higher as the labour market tightens,” he said.
