The Banking index yesterday fell nearly 2 percent as the rand weakened to a 3-month low against a resurgent dollar bolstered by rising US bond yields.
The rand weakened to R12.27 against the greenback, R17.12 to the pound and R14.99 against the euro. Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions, said the decline was driven by rising US bond yields which sparked a sell-off of riskier emerging-market assets.
“Data released this afternoon (yesterday) from the US further contributed to the dollar rally, as existing home sales came in higher than expected, gaining 1.1 percent month on month as opposed to the 0.2 percent anticipated,” Botes said.
“The rand will remain under pressure as long as the US dollar retains its strength, but the local currency has also been heavily overvalued in recent months, so we expect it to show a more sustainable correction towards R12.30 – R12.50 against the dollar.”
The bank’s index closed the trading session 1.64 percent down on a day that financials stocks came under pressure.
The biggest bank by market capitalisation, FirstRand, eased 2.96 percent to R66.45, Nedbank 2.30 percent to R294.08 and Barclays Africa 3.33 percent to R174.00.
Standard Bank and Capitec closed the day flat. Nedbank strategist Mehul Daya said most emerging market currencies were weaker due to the stronger dollar which is risk-off.
“Our six-month and 12-month target ranges for the US dollar/rand remain unchanged at R12.40 and R13.00 respectively. We believe there is too much complacency in risk assets, given our outlook for the global economy,” Daya said.
Saudi Arabia, one of the world’s largest oil producers, rattled markets last week when it said it would like to see oil prices at $80 or even $100 a barrel.
The announcement pushed the oil price to its highest level since 2014.
Andre Botha, a senior currency dealer at TreasuryONE, said the surge in oil prices went against the normal rand convention.
Botha said: “That’s significant due to the emphasis being placed on the inflation effect this will have in the US and subsequent interest rate hikes.
“A weaker rand and stronger oil price do not bode well for South Africa’s inflation rate, and maybe the governor of the Reserve Bank was right in his cautious approach to the cutting of interest rates as normalisation of markets could cause a bit of turbulence in the market.”