International currency exchange. Currency convert,
(Getty)
  • The rand is outperforming other currencies, thanks to a rallying gold price and SA's first current account surplus in 17 years.
  • The dollar is under pressure amid concerns about the US economy.
  • For more articles, go to www.BusinessInsider.co.za.

Despite surging coronavirus cases, load shedding and a shrinking economy, the rand continues to outperform other emerging market currencies.

This has been the third week in a row where the rand outperformed both the dollar and all other BRIC (Brazilian, Russian, Indian and Chinese) currencies, says Schalk Louw, a portfolio manager at PSG Wealth.

rand
The rand/dollar is the light orange line, compared to the Mexican (green), Brazilian (orange), Turkish (purple) Russian (blue), South Korean (yellow) and Australian (grey) currencies. Source: TreasuryONE

On Monday morning, the rand was trading at R16.74/$, around its best level in a month:

Rand/dollar rate over the past year. Source: XE

The dollar has been under pressure for most of the week, amid concerns about the raging coronavirus crisis’ impact on the US economy and very low interest rates, which make the dollar less appealing. The rand was last at R21.19/pound and R18.96/euro.

Better than expected data out of SA has also helped, with the surprise current account surplus - for the first time in 17 years, says Wichard Cilliers, head of dealing at TreasuryONE.

In the first quarter of 2020, South Africa exported almost R70 billion more in goods and services than it imported. This is good news for rand demand, as it means that fewer local importers had to sell rand and buy overseas currencies to pay for their imported goods.

The rallying gold price also supported the rand.

“Over the shorter-term period, while commodity prices (gold, platinum, palladium, etc) are running, I would not be shorting the rand now, as this is still very good for the South African economy,” says Louw. His medium-term target for the currency is R15.50/$.

Last week, gold spot prices broke above $1,800 per ounce for the first time since 2011 as investors bought it as a "safe haven" investment. South Africa is among the top ten gold producers in the world. It is also the world's largest producer of platinum and, with Russia, dominates the palladium market.

The platinum price has recovered from below $600/oz in March, to above $800, while palladium is close to $2,000 after dipping to below $1,500.

But Cilliers expects that the rand could come under pressure as the full scale of the pressure on the South African economy plays out.

South Africa's economy shrank by 2.0% in the first quarter of 2020, and the Reserve Bank expects that gross domestic product contracted by almost a third in the second quarter.

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