Should Biden win US presidential election, this would undo number of policies implemented by Trump which cued the rand, seeing it surge to level last seen in early March before pandemic hit, writes Siphelele Dludla
The US presidential election this week unwittingly delivered the best performance for emerging market currencies in months as investors went overdrive on a risk-on feeling, dumping the dollar in anticipation of a pleasing result.
The outcome of the hotlycontested election remained on razor-edge on Friday, weakening the dollar to the lowest level in more than two years as uncertainty reigned over the results.
President Donald Trump trailed with a few swing states favouring his challenger Joe Biden for an all-but certain win. The markets have been pricing in that a Biden win would deliver a significant stimulus package to reignite the world’s largest economy.
But a divided Congress could lead to lower stimulus spending. Biden’s Democratic party is expected to undo a number of policies implemented by Trump and work on and improve the US foreign policy. T
he rand took cue from this positive sentiment and surged to around R15.70 by the end of the week, a level last seen in early March before the Covid-19 pandemic hit South African shores.
The domestic currency has been under immense pressure this year as a result of the Covid-19 impact on the economy, beginning this week at R16.23 to the greenback.
Though the rand has failed to beat its best performance of R14.01 on January 1, analysts believe it was on track to claw back the losses of the last three quarters closer to what it was at the beginning of the year.
The stock market on the JSE also experienced noticeable increases, with the JSE All Share Index rising above 56 000 points and the Top40 Index surging more than 51 000 points.
FXTM’s Lukman Otunuga on Friday said investors across the globe were likely to adopt a guarded approach amid the cliffhanger vote count with full unofficial results from key swing states.
Otunuga said the race for the White House remained too close to call and that concerns were elevated over Trump contesting the results of certain states. This, he said, would open the door to more uncertainty.
“Given how officials have already warned that it may take days or even weeks for the final results amid the huge number of postal ballots, markets could be in for a rocky ride for the rest of 2020,” he said.
The US Federal Open Market Committee (FOMC) meeting on Thursday added to positive financial market sentiment as it kept interest rates unchanged.
The FOMC highlighted the downside risks that Covid-19 poses, with the US reaching 100 000 new infection cases on Thursday alone. The total number of Covid-19 deaths in the US has surged passed the 230 000 mark.
The committee also stated that more fiscal action was needed to prop up the economy. Foreign exchange reserves in South Africa unexpectedly declined by $0.77bn to $53.67bn, while the international liquidity position increased by $0.70bn to $51.36bn in October.
Investec’s chief economist Annabel Bishop said Biden was expected to bring greater controls to flatten the Covid curve and engender sustainable economic recovery market sentiment is positive.
Bishop said the rand continued to maintain an underpin so far as risk aversion subsided in markets and weakening safe haven flows into the US, and so the dollar.
“Indeed, such has been the extent of risk-on in financial market sentiment from the strong lead Biden has in the US elections, that foreigners have bought a huge R7.7 billion worth of SA bonds, net of purchases this week,” Bishop said.
BUSINESS REPORT