What's behind the stronger South African rand?
The rand holds below R17 to the dollar.
Image: Pixabay
South Africa’s currency held up against the dollar overnight as the US holds its breath over a potential interest rate cut.
The rand, which is known for its volatility, breached the R17 mark on Thursday and was trading at R16.94 mid-morning on Friday.
South Africa’s currency has also benefited from positive local factors, indicating an improving economy and trading environment.
Andre Cilliers, currency strategist at TreasuryONE, notes that the dollar failed to build on overnight gains.
It fell back on Friday morning as the expectations for a US Federal Reserve rate cut next week remain elevated.
The Fed has a difficult task ahead of it next week as it decides on interest rates, given the paucity of data it has needed to work with following the longest government shutdown in history.
Data that was delayed finally started coming through a few weeks ago.
Cilliers added that the currency is at its best level in three months following South Africa's current account deficit shrinking to 0.7% of gross domestic product from 1.0%.
“Strong commodity prices also helped the commodity-backed rand, while good exporter and investor inflows provide support,” said Cilliers.
Bloomberg on Wednesday reported that a gauge of expected volatility for the rand versus the dollar is at its lowest level since the turn of the century.
This, it said, suggests that traders expect little upheaval for the South African currency as the year draws to a close.
The rand has long been one of the most volatile emerging-market currencies.
Over several decades, it has been sensitive to changes in global risk appetite, commodity cycles, domestic politics and interest-rate differentials.
For example, the rand has ranged between under R12 and almost R20 to the dollar in the past seven years.
On Thursday, Bianca Botes, director at Citadel Global, said the rand remained supported by the softer dollar and was trading at under R20 to the euro and below R23 to the pound.
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