• The rand has strengthened 2% in a couple of hours, reaching R12.50/$ on Thursday morning
  • The SA currency is outperforming its peers over the past year, and over five years.
  • One investment expert thinks the currency could still go to R11/dollar.

The rand has strengthened more than 2% in less than a day, reaching R12.43/$ on Thursday morning, from a weak point of R12.72 on Wednesday.

Demand for the currency improved by an easing of geopolitical nerves, Reuters reported this morning."Market have largely absorbed the shock of President Donald Trump’s decision on Tuesday to pull the United States out of an international nuclear deal with Iran."

Wichard Cilliers, director and head of dealing at TreasuryONE, says the big data to watch today will be US CPI (inflation) expected at 14:30 on Thursday afternoon "This will give us further indication of interest rate expectations in the US." 

"For now we expect the dollar/rand to remain range bound within the R12.50 to R12.70 levels."

Rand is doing much better than its peers

Emerging market currencies have been under pressure for weeks. In the past two weeks, foreign investors withdrew $5.5 billion from emerging market bonds. Apart from Iran-concerns, they have been unnerved by the crises in Argentina (interest rates have been hiked to 40% to defend its currency) and Turkey (political turmoil).

Bloomberg reports that as of Wednesday, the MSCI Emerging-Market Currency index has wiped out all of its gains this year. Emerging market stocks are already in negative territory for the year. The Argentine peso has lost 17% this year and the Turkish lira 11%. 

While the rand also lost some ground in recent weeks, it is performing much better than its struggling peers as is clear from the following graph, shared by independent analyst Johann Biermann.

It tracks the US dollar's performance over the past year against the Argentine peso (red line), Turkish lira (green), Russian rouble (yellow) and Brazilian real (blue). While the US currency gained massively against most currencies, it actually lost 7% against the rand (orange line):

Orange: The rand. Red: Argentine peso. Green: Turkish lira. Yellowish: Russia rouble. Blue: Brazilian real. Source: Johann Biermann
 Even over five years, the rand is holding its own:
The dollar against emerging market currencies, over the past five years. Source: Johann Biermann

The rand and other emerging markets will remain under pressure over the short term, especially now that the US 10-year bond yield is again above 3%, says Biermann.

But Kevin Mattison, managing director of the equities trading and analysis firm Avior Capital Markets, remains upbeat about the rand. In fact, he thinks the rand could go to R11 to a dollar.

"Policy certainty will attract investment, which will drive growth and attract more investment in turn. South Africa has a diversified economy, which has capacity to support more growth through its various institutions, both public and private.

"If South Africa can get all stakeholders (private and public) on side, the rand could strengthen towards R11/dollar, given a favourable commodity cycle, rising optimism and accelerating growth," Mattison added.

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