Rising investor appetite for risk gives the rand a boost
JOHANNESBURG - The rand dipped below the psychological level of R16.50 to the dollar after strengthening by 0.55percent yesterday on rising investor appetite for risk assets.
FXTM’s chief market strategist, Hussein Sayed, said investor sentiment was supported by China’s third-quarter economic growth and optimism that the US may reach an agreement on a stimulus package before election day.
China remains the only major economy to post growth for the first nine months of this year, with data yesterday showing that third-quarter gross domestic product (GDP) rose 4.9percent.
US House Speaker Nancy Pelosi has also set today as the latest line in the sand for a stimulus package deal amid rising numbers of Covid-19 cases.
Sayed said market participants were fed up with US politicians, as the deadline for coronavirus relief continued to be pushed further out.
“A stimulus package is certainly required at the moment with US infections topping 50000 for a fifth straight day, while millions of Americans need aid with rising economic stress,” he said.
Last week’s Economic Reconstruction and Recovery Plan by President Cyril Ramaphosa failed to inject some life into the rand, with markets preferring to adopt a wait-and-see approach.
By 5pm yesterday the rand was bid at 16.45 to the dollar.
Investec’s chief economist, Annabel Bishop, warned that the rand might not remain below R16.50 to the dollar for long, due to volatile domestic and global markets. Bishop said the rand would likely depreciate markedly if the upcoming Medium-Term Budget Policy Statement shifts to a debt peak of 100percent of GDP.
Bishop said the vicious cycle, or debt spiral, was a key concern of investors, who worry that South Africa was quickly losing its creditworthiness.
“The rand is also at risk of negative market sentiment from external factors, as US fiscal stimulus approval continues to drag, while Brexit and the US elections pose further risk for volatility in the period ahead,” she said.
The markets closed in positive territory. The FTSE/JSE All Share Index was 0.24percent stronger at 55178points, while the Top40 Index firmed 0.16 percent to 50777points.