Rand continues on merry-go-round while SA woos US investors

Oct 03 2016 08:40
Matthew le Cordeur

Cape Town – The rand has returned to the same position it was in last Monday, after analysts were confounded by a lack of positive movement after the SABMiller deal with AB InBev was finalised last week.

By 08:30, the rand was trading 1.3% stronger at R13.75/$, 1.5% stronger at R17.79/£ and 1.2% stronger at R15.44/ €.

RMB analyst John Cairns said on Monday that the rand remains confounding.

He said the rand’s weakness last week was due to bond and equity indices re-weightings, merger and acquisition flows due to the Aspen deal, and a Deutsche bank inspired dollar liquidity shortage.

“But the underlying puzzle remains the lack of support from SABMiller deal inflows,” he said. “Could these flows simply have been overwhelmed, or possibly they have not been transacted yet – or maybe the SARB has been taking most of them?”

Umkhulu Consulting analyst Adam Phillips said on Monday that the rand traded as high as R14.05/$ on Friday and closed nearer R13.70/$.

“I suppose technical players will say that the short term positive positioning of the rand is still there, but I am still wary of local news that can upset this scenario very quickly,” he said.

Cairns said global issues are secondary to the rand as about 70% of moves in the rand last week were locally driven.

“Local media has been speculating that the NPA is considering dropping charges against Minister (Pravin) Gordhan, although it appears that they are being challenged on this by the Hawks,” he explained.

“The good demand for the new sovereign offshore issue has also been encouraging,” he said. “The sole negative news came from the surprising trade numbers but our take at this stage is to dismiss this as just normal volatility: judging by the trends in domestic demand and the improving commodity prices the trade and current accounts should continue to improve.”

Affecting the rand this week will be the sold-out SA conference in New York, which is taking place over the next two days, said Phillips. It will be followed by an IMF meeting in Washington “where many delegates will flock to after the New York event”.

“The treasury were very successful in raising some dollar funding last week, with the offer being 2.5 oversubscribed, but the downgrading beat will still be heard,” he said.

The key data out this week will be on Friday when the US releases non-farm payroll numbers. Locally, vehicle sales come out today, with the PMI and Business Confidence Index on Wednesday, while on Friday gold and forex reserves are released, explained Phillips.

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