Rand makes a resolute comeback as US-China trade war keeps market on its toes
CAPE TOWN – The rand is on a serious comeback crusade, compared with what was witnessed over the past weeks, as it smashed through the R15 a dollar level with ease, during intraday trade on Wednesday.
At 2:25pm on Wednesday the domestic unit was trading at R14.86 a dollar amid a swirl of positive sentiment.
The rand got its some much-needed impetus from the surprise 3.1 percent growth in South Africa’s second-quarter gross domestic product (GDP), which effectively means the country has avoided a technical recession.
A late slump in the trade-weighted greenback added to the rand’s momentum, according to NKC Research. “Data respite aside, the local unit remains on a very fragile footing as ongoing US-Sino trade tensions continue to weigh on risk sentiment, as Beijing and Washington still have not agreed upon a meeting date for a new round of talks.”
TreasuryONE economist Andre Botha said while the domestic currency was buoyed by the GDP number, events from further afield had cast some doubts on the global economy with weaker than expected US PMI data.
“The PMI data slipped below the 50 mark watershed for the first time since August 2016 as renewed concerns about the impact of the US-China trade war,” said Botha.
Treasury partner at Peregrine Treasury Solutions Bianca Botes said the next few events in the near future, including the US Fed interest rate decision, all pointed to a positive outcome for the domestic currency, with carry trade likely to emerge once again.
“There is a likelihood of the rand retracing back to the R14.60 mark, which would present an excellent opportunity for rand sellers/purchasers of foreign currency to hedge future exposure. We believe that the rand's strength in the medium and longer-term is unsustainable,” said Botes.
Dynamic Outcomes’ James Paynter said the unfolding sagas with the US-China trade war, Brexit, and the Hong Kong crisis would keep everyone on their toes.
“And then we have US Fed's Chair Powell speech … which could prompt a knee-jerk reaction from Trump's Twitter finger … which in turn could prompt some reaction from the market,” said Paynter.