The rand

  • The rand strengthened to under R17 to the dollar on Thursday - its best level in weeks.
  • It benefited from a greater risk appetite among global traders, who are encouraged about positive Covid19 vaccine news and strong manufacturing data.
  • In May, the currency slumped to a record low of R19.26/$.
  • For more stories, go to Business Insider's home page.

On Thursday, the rand rallied to below R17/$ for the first time in weeks.

It was last around these levels early in June, but then quickly weakened again as coronavirus concerns ravaged markets, and global investors fled to safer assets.  

It also received a boost from South Africa's first current account surplus in 17 years in the first quarter of 2020 - this means that SA is exporting more goods and services than it is importing

The latest rally is thanks to better-than-expected manufacturing data out of the US and Germany, as well as positive Covid-19 vaccine news, says André Botha, a senior dealer at TreasuryONE.

This week, scientists working on the University of Oxford's potential Covid-19 vaccine said they were encouraged by the immune response in trials. Encouraging results from early-stage human trials of a potential vaccine from Pfizer and Germany’s BioNTech also fuelled hopes of a successful vaccine.

On Wednesday Pfizer revealed positive early-stage trial results for its coronavirus vaccine.

Pfizer's human trial involved 45 participants aged 18 to 55 receiving either 10, 30, or 100 microgram doses of the BNT162b1 vaccine or a placebo over a 21 day period. The compound successfully created antibodies for combatting the coronavirus in all participants receiving two of the 10 or 30 microgram doses, according to a Wednesday release.

Pfizer said patients created between 1.8 and 2.8 times the antibodies seen in those who have recovered from COVID-19.

Jeffrey Halley, senior market analyst, Asia-Pacific at OANDA, said: "Based on a vaccine trial containing 45 people, including placebos, the v-shaped recovery gnomes, are once again, reaching for the sky."

Naeem Aslam, chief market analyst at Avatrade, said: "The positive news on coronavirus vaccine trial data that came out yesterday still has a positive influence on the sentiment. But the reality is that we are still long way away from home as these results are still very much associated with earlier trial data.

"The odds for any kind of vaccine becoming available are still remote," he cautioned.

Manufacturing boost

In a note to clients, Anchor Capital also pointed to positive data from the Absa PMI – or Purchasing Managers Index, which measures manufacturing activity in South Africa. “The Absa PMI reached its highest level since August 2013, showing that conditions in the manufacturing sector reached a multiyear high in June,” said the company.

Anchor has previously indicated that the rand could break the R15 mark this year. The rand last traded around R15 at the start of February.

It lost significant value since then after investors fled emerging markets amid the Covid-19 crisis.

In May it reached a record weak level of R19.26/$ amid a perfect storm of global economic paralysis and concern about South Africa's fiscal position.

By Friday morning, the rand was at R16.98$, and also trading at R19.06 to the euro and R21.15 to the pound.

In a world with very low (and negative) interest rates, the rand still offers an attractive rate for traders searching for yield.

It could also benefit from a new wave of investment into emerging markets, which saw increase ninefold in June.

Reuters polled 52 currency strategists for the expectations for emerging market currencies, and around 60% expect currencies to strengthen.

However, analysts urged caution. "As long as there is no bad news, emerging markets can grind higher. But how long can this last in the face of a bleak structural outlook?" David Hauner, head of emerging markets strategy at BofA, told Reuters. "Sadly, COVID-19 is far from under control in many of the big emerging markets. Nevertheless, depressed sentiment creates a low bar for positive surprises as economies emerge from the lockdown."

Additional reporting by Saloni Sardana

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