Cape Town – While the rand retains a natural tendency to outperform its peers, a strong dollar and local political troubles will restrict any significant further rand gains this year.
That is according to Rand Merchant Bank currency analyst John Cairns on Friday, who was commenting on the latest strengthening of the rand.
The rand, which traded at a high of R12.88 to the dollar on Friday morning, weakened to R12.94 at 08:45 “as the dollar firmed after upbeat US private sector job figures appeared to boost the prospects for a US interest rate hike this month”, according to Reuters.
South Africa is expecting another ratings decision by S&P Global Ratings and Moody's after Fitch on Thursday kept the local- and foreign-currency ratings at BB+ with a stable outlook.
“The review by Fitch Ratings is the obvious hat to hang the rand outperformance on, but we are sceptical,” he said. “It surely came as no surprise to anyone that they kept the rating unchanged; and while their statement was more positive than expected, this is hardly game-changing stuff for SA.
“The more interesting conclusion is that the rand retains a natural tendency to push stronger,” he said. “This strengthening bias was strongly evident in 2016 and one could argue that it has continued in 2017, but that the trend has been disguised by the once-off sharp losses seen after the firing of the finance minister.
“We are open-minded to this view although our core thinking is that the global environment, particularly the strength in the dollar, as well as the local political troubles will restrict any significant further rand gains this year.
“The rand already has done a lot, matching the gains seen when speculation about an ANC NEC recall of the president was so rife last week,” he said. “The Barclays sell-down also hangs over the market, particularly as the book build generated R36bn rather than the R25bn expected.”
Phillip Pearce, dealer at TreasuryOne, agreed that the rand’s strength “is puzzling as there is no single core reason to justify the significant and rapid movement”.
He said the US jobs number will be the most keenly watched data release during trade on Friday.
“Standard & Poor’s and possibly Moody’s will publish their credit rating review this evening. Up and till then sentiment will drive trade as we trade between 12.85 and 13.10.”
GRAPH: Intraday rand/dollar movements on Friday (Source: Bloomberg)
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