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Rand at its 'unpredictable best' as it strengthens 1%

May 22 2018 13:16
Jan Cronje

After threatening to breach the R13.00/$ level on Monday, the rand started on a stronger footing Tuesday, gaining 1% against the greenback.  

At 13:01 the local currency was trading at R12.57/$, after opening at R12.67 to the dollar. It hit R12.49 earlier in the session.

"The rand is again trading at its unpredictable best," noted Andre Botha, a dealer at TreasuryONE, in a morning note.

Local analysts attributed the gains to a variety of factors, including lower US bond yields, dollar weakness, a decrease in trade tensions between the US and China - which would make emerging market currencies more inviting - and caution ahead of the release of the minutes of a US Federal Reserve Bank meeting.

Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions, said the rand’s gains correlated to overnight dollar weakness. 

The spot dollar index - its value relative to a basket of six foreign currencies - was 93.4 on Tuesday at 10:45, down 0.3% on the day. 

Botes noted that the dip in the dollar came as US markets await the release of the minutes of May 1 - 2 meeting of the Federal Reserve Bank’s Open Market Committee.

This “indicates that the market expects interest rates to remain flat and increase at a slower pace,” she said. 

Botha, meanwhile, said the local currency's overnight gains were helped along by indications that the geopolitical risks between the US and China regarding their ‘tariff war’ may be dying down.  

“We (also) have the US stock market rising on the back of that,” he said. “With the renewed stock market gains we have seen risk-taking behaviour picking up which has seen emerging market currencies strengthening across the board.”

Hussein Sayed, chief market strategist at FXTM, said the rand would likely keep taking its cue from the US dollar. 

“The global currency markets continue to be dictated by the resurgence in the greenback, and its direction will still provide direction for other currencies,” he said. 

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