JOHANNESBURG – The rand on Wednesday accelerated past the psychological R17 level against the US dollar on the back of improving global sentiment and a weakening greenback as a result of continuing large-scale protests in the country as well as protracted tensions with China.
The rand rose 0.19percent to exchange hands at R16.92 against the dollar by 5pm, the currency’s strongest run since the coronavirus pandemic lockdowns in March and Moody’s decision to downgrade South Africa’s rating to sub-investment grade.
The rand also inched up 0.16 percent to R21.32 to the pound sterling and 0.13percent to R18.99 against the euro.
Old Mutual investment strategist Izak Odendaal said that the rand benefited from improving global sentiments, with more economies now opening up after imposing strict restrictions to contain the spread of the pandemic in March.
“The rand’s strength is mostly just a shift in global risk appetite, as is normally the case. We have seen global markets rallying quite a bit on the weakness in the dollar,” Odendaal said.
“We have seen quite a policy shift in Europe, a pan-European policy response to the coronavirus to share the burden of responsibility, and that has strengthened the euro.”
The rand has improved by more than R2 to the dollar since it breached the R19 level twice in April after the Moody’s downgrading of the country’s investment grade to junk.
Odendaal said the continued strength of the rally primarily rested on the global outlook and how the world economies dealt with Covid-19.
He said the outlook was now positive and good for exporters.
“For investors, the strengthening encourages portfolio investments,” he said.
“If the rand gains can be substantially reversed, then money can be pulled out of the financial markets. But that would take quite a significant event, like the virus mutating or something.”
The rand’s rally was also felt in the markets as the JSE All Share index closed 2.19percent higher at 53645points, while the Top40 Index rose 2.03 percent to 49300 points.
FXTM’s Lukman Otunuga said that the rand had ignored the data for May, showing that investor confidence over the South African economy was likely to remain on a slippery slope.
The Markit’s Purchasing Managers’ Index (PMI) slipped to 32.5points last month, from the 35.1points witnessed in April, which pointed to the steepest contraction in private activity on record. The PMI showed that the impact of the national lockdown was felt across the economy, with new orders and exports sales plunging, and employment falling for the seventh consecutive month.
Otunuga said although economic data over the coming weeks may paint a similarly gloomy picture, there was a sense of optimism that the worst of the coronavirus could be behind now.
“This sentiment is being reflected in the South African rand which has appreciated against every single G10 currency today and gained more than 1percent against the dollar,” Otunuga said. “As the final trading month of the second quarter gets under way, it now becomes a question of whether central banks and governments exhausted all their tools in the fight against coronavirus and whether their respective economies are able to bounce back.”