Money and Markets

US election continues to boost rand – R15/$ ‘increasingly plausible’

Business Insider SA
International currency exchange. Currency convert,
  • On Friday morning, the rand was trading at R15.71 - its best level since early March, before lockdown and the Moody's downgrade.
  • A Biden victory is seen as bad news for the dollar, particularly because he will be less protectionist than US president Donald Trump.
  • One analyst believes the rand could now approach R15.
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On Friday morning, the rand was trading at its best level in almost eight months as Democratic contender Joe Biden was still maintaining a narrow lead in the US election.

It was trading at R15.71/$ as Biden maintained his lead in Nevada and Arizona and the gaps in President Donald Trump’s leads in Pennsylvania and Georgia start to shrink.

Biden was nearing the 270 electoral votes needed to win the US presidential election. He currently has 253, compared to Trump's 213.

But uncertainty around the outcome of the US presidential election remained, with margins tightening across several battleground states.

LIVE | Biden chips away at Trump's leads in Pennsylvania and Georgia, Trump gains in Arizona

A Biden victory is seen as bad news for the dollar. He is expected to approve a large stimulus package, adding to US government debt, and possibly diluting the value of the dollar. Biden should also stop the American trade war with China and others. This will mean more imports to the US, which could also weigh on the dollar.

The dollar - a safe haven in times of tumult - could also weaken if the US gets a less erratic leader. Trump has introduced a large element of uncertainty in markets over the past four years with shock pronouncements, specifically on trade and international relations.

"A Biden administration is expected to push for a stimulus package, which the markets are eagerly anticipating," said Nolan Wapenaar, fund manager for Anchor Capital.

"Similarly, policy is expected to be more predictable and, for now, this should create a more supportive environment for emerging markets, and consequently also be supportive of the rand. 

"In the longer term, (a Biden victory) also opens up possibilities for the rand to keep grinding stronger. In our view, R15.00 to the greenback has now become increasingly plausible," added Wapenaar.

Markets like divided government

Defying expectations, the Republicans look set to retain the US Senate.  

US stocks have soared to multi-month highs in reaction to this development. The big indices on Wall Street gained more than 2% on Thursday, as investors turned more bullish toward the prospect of a divided government. While it would be harder for a split Congress to pass a massive stimulus package, Senate Majority Leader Mitch McConnell indicated he aims to pass another relief bill before 2021.

Following its two-day policy meeting, the Federal Reserve on Thursday elected to hold interest rates near zero and maintain the Fed's pace of asset purchases. The decision was largely expected by economists and market participants.

Healthcare stocks led the market higher as the prospect of a Biden presidency and a Republican Senate would stymie a wide-reaching overhaul to America's healthcare system. Tech shares also closed sharply higher, with the Nasdaq 100 posting its best single-day increase since April.

Along with other currencies, the rand has had a tumultuous 24 hours.

It slumped to almost R16.40/$ on Wednesday as the US elections upended many expectations of a clear Biden win. Instead it turned into a nail-biter, with Trump performing much better than expected, easily taking the key state of Florida.

But as Biden's position strengthened, the rand rallied against the dollar, and also firmed against the euro (R18.58) and the pound (R20.63).

At the height of lockdown, and following the Moody's downgrade of SA sovereign debt, the rand slumped to R19.26/$ in April.

Spot gold jumped as much as 2.6%, to $1,952.79 per ounce on Thursday. The precious metal's climb placed it at its highest point since mid-September and pushed prices above their 50-day moving average.

Brent crude, oil's international benchmark, sank more than 2%, to around $40.33 per barrel.

The article has been updated with the latest currency rate, and election updates. International market reporting by Ben Winck.

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