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Rand firms by 2.5% against the dollar in early trade

The rand firmed by 2.55% against the dollar in early trade on Tuesday morning, nearing the R14/$ mark, after it breached the R15/$ level on Monday.

The local currency was trading at R14.05 to the greenback at 09:45.

The rand had reached its lowest level in two years on Monday to at one stage trade at R15.41/$. This was caused mainly due to the contagion of the financial crisis in Turkey, analysts from NKC African Economics said in a market update on Tuesday morning

“The South African currency strengthened from technically oversold levels and was also helped by Turkey’s new economic action plan as well as buoyant Chinese money supply data for July, which gave some support to battered emerging market sentiment.”

NKC expects the rand to trade in a range between R14.10/$ and R14.40/$ on Tuesday.

Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions, said in a morning note that the massive swing in the rand's value reflects the extent to which it was oversold.

Botes said that while correction could also be influenced by Monday's Constitution Court’s ruling that the appointment of National Prosecuting Authority head Shaun Abrahams was unconstitutional, this would have only had a small impact.

She said a correction is normally expected when a rapid devaluation takes place due to contagion from other markets. “Fair value would put the rand in the region of R13.20/$, and the current price is still quite far off that mark,” she said.

Government stability

“While little can be done in the immediate term to counter the devaluation and return the currency to fair value, government stability is now of crucial concern.

“In the midst of emerging market turmoil and the Turkey debacle, South Africa simply cannot afford to display government instability and a lack of rule of law. This would, once again, see investors rush out of the local economy to seek a safe haven for their investments elsewhere," she said. 

“Volatility will remain high with wide fluctuations during intraday trade. Remaining objective will be key to navigating current market conditions,” she said.

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