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Rand appreciation continues on the back of increased demand from foreigners

Dr Chis Harmse is an economist at CH Economics. Photo: File

Dr Chis Harmse is an economist at CH Economics. Photo: File

Published Sep 13, 2021


BETTER-than-expected economic growth data for South Africa during the second quarter and the appetite for the rand by foreigners saw the currency moving stronger for the second consecutive week.

Foreign demand for the rand increased last week as the inflation rates for a lot of other emerging countries is increasing strongly.

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For instance, in Brazil the inflation rate had increased to 9 percent. In Turkey, the inflation rate had risen sharply to 19.25 percent, and in Russia, to 6.5 percent, well above the target of 4 percent.

In South Africa, inflation remains within the targets and the rand now becomes attractive for foreign investors. The stronger economic growth of 1.2 percent during the second quarter, on the back of the 1 percent growth in quarter 1, still points to an expected growth rate of more than 4 percent for 2021.

This despite an expected lower and even negative growth rate in quarter 3 due to the looting and unrest in KwaZulu-Natal and Gauteng in July.

These growth rates also led to interest in the rand by specular transactors.

The rand had appreciated for the third consecutive week and closed Friday on R14.16 to the dollar.

This is 11 cents stronger than the previous week and 115c down from the R15.31, three weeks ago.

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Against the pound, the rand traded 17c stronger at the close on Friday, than the previous week at R19.62, and much lower than the weaker R20.85, three weeks ago.

Against the euro the currency improved by 20c, last week, to R16.76, against R17.88, three weeks ago.

The stronger rand improves changes that fuel expectations that prices may decrease sharply at the beginning of October.

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At this moment, the petrol price is over-recovered by 11c per litre, and diesel by around 24c per litre, and should decrease at the beginning of next month.

On the JSE, ironically, the stronger rand, together with a sharp decrease in the gold and platinum prices, caused most share indices to decrease for the third consecutive week.

The All Share Index, last week, lost another 3.1 percent and now trades at 5 percent lower than two weeks ago.

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Rand hedging stock, as well as increased regulation in China, caused the Industrial board to lose 2.1 percent, last week.

Financial shares and property also traded down by 2.7 percent and 3.1 percent, consecutively. The lower prices for gold and platinum contributed to a loss of 5.0 percent in the Resources 10 index.

The continuous decrease in jobless benefits in the US to a new pandemic

low, illustrates the increased demand for labour, and fears of cost wage inflation may force the US Federal Reserve to start to sell securities in the market (tapering) much sooner.

Producer prices also increased faster in August, than had been forecast, supporting a possible Fed tapering. Strategists from the top Wall Street banks now become more cautious on US economic outlook.

These factors all contributed to affect equities on Wall Street negatively and prices dropped on Thursday and Friday. These negative movements on

Wall Street are having bearish effects on stock prices around the globe and on the JSE.

On Friday afternoon, the Dow Jones traded already 1.7 percent lower than the previous Friday. The S&P500 was down for the week by 1.12 percent and the Nasdaq traded lower by 0.8 percent

This coming week investors and analysts will concentrate on the release of the mining production figures for July tomorrow and the retail sales numbers also for July on Wednesday.

On global markets all attention

will mainly be on the release of the US and UK inflation figures for August, tomorrow.

US industrial and manufacturing production data for August will be announced on Wednesday and its Retail sales on Thursday.

US jobless claims on Thursday will again draw the attention of global financial markets. UK and EU retail sales and inflation rates for August will also be released this coming week.

Dr Chis Harmse is an economist at CH Economics

*The views expressed here are not necessarily those of IOL or of title sites