To expect rand recovery would be 'foolish' - analyst

Cape Town – Although the rand traded in a stable range of 19c on Thursday, it would be foolish to expect a recovery to take place now, according to TreasuryOne dealer Phillip Pearce. 

The rand traded 0.12% lower at R13.74 to the dollar at around 10:00 on Friday, and Pearce was of the view that the currency would trade between R13.65 and R13.90 for the rest of the day. 

“We should see how the nationwide protest unfolds today as well as the build up to the no-confidence debate on April 18.” 

Pearce emphasised that the “blowout” concerning the rand has been limited by continued interest from foreign buyers of South African bonds. “[They] feel there’s exceptionally good value in that market.”

Over the past two weeks, foreigners bought R23bn worth of South African bonds.

READ: Net foreign bond buying jumps amid Gordhan removal

But that doesn’t necessarily mean foreign investors are happy that Pravin Gordhan was replaced as Finance minister, said Rand Merchant Bank currency economist John Cairns in a company note. 

“Our analysis shows that emerging markets in general are seeing record inflows. A rising tide lifts even a half-submerged boat,” Cairns said. 

Country-wide protest marches against President Jacob Zuma’s presidency are taking place on Friday. “But we are not sure that they mean much for the markets,” Carins said. “Any violence would be negative, particularly if it was perceived that the police were somehow hostile towards the anti-Zuma protestors.”

GRAPH: The rand's daily performance against the dollar since the start of 2017

Source: Bloomberg

Risks remain

Cairns pointed out that market talk that all the negatives have already occurred are “highly misplaced”. 

“A populist new director-general at National Treasury, police violence, rating downgrades from Fitch and Moody’s, expansionary fiscal policy, the release of the very market-unfriendly mining charter, land redistribution without compensation – the list of potential further negatives goes on and on,” Cairns said. 

READ: Chamber in the dark over delay in Mining Charter