Johannesburg - The rand yesterday led the global currency recovery when it recovered against the dollar after slumping to a two-month low due to a stronger dollar in the wake of Donald Trump’s victory in the US presidential election.
The rand hit a session low of 14.5125 to the dollar on Monday, its weakest level since September 13, according to Thomson Reuters data, tumbling alongside currencies in emerging market peers on growing bets that Trump would ramp up spending to boost growth in the US economy.
Yesterday the rand opened at R14.4176, hit a low of R14.1042 before being bid at R14.1448 by 5pm.
Read also: Rand recovers after sell-off
Dawie Roodt, the chief economist at Efficiency Group, said the weakening of the rand had been overdone. Roodt said whenever nothing happened, the rand remained a likely bet to strengthen. “That probably happened on Monday and yesterday. However, whenever there is another reason to be concerned the rand will take a knock again.”
The rand, like many currencies suffered from an unexpectedly strong dollar after Trump’s shock victory in the US elections. The dollar strengthened as investors braced for stronger inflation in the US amid expectations of expansionary fiscal policies under Trump. Dollar strength and rising US yields fuelled capital outflows from emerging markets.
Correction
“The time is just right for a correction on emerging market currencies because these currencies have sold off very aggressively in the past week and the sell-off is not necessarily a true reflection of underlying fundamentals for these currencies,” said Jana van Deventer, a market analyst at ETM Analytics.
The rand’s biggest one-day gain in two weeks has not stopped David Bloom of HSBC from predicting it was set for more pain as political risks and the prospects of a credit rating downgrade deter investors.
HSBC, previously the most bullish of analysts in a Bloomberg survey, expects the rand to weaken to 14.50 to the dollar by the end of this year, compared with an earlier projection of 13, and to 16.50 by the end of next year against 12.50.
“We have been bullish on the rand over the recent months on improving of macrodynamics, credible monetary policy and attractive valuation,” HSBC analysts led by Bloom said.
“Our view that politics were a secondary factor has largely played out. However, we no longer believe this is the case. Global political dynamics make looking through the noise increasingly difficult,” with the political premium getting more entrenched, the bank said.
Emerging stocks rose off four-month lows and a slight dollar retreat gave some respite to currencies, although China’s yuan traded near eight-year lows versus the greenback.
“It seems very clear that the market was not positioned for a win by Trump,” said Simon Quijano-Evans, emerging markets strategist at Legal and General Investment Management. “What’s been happening for the last week has been adjusting to that, and second guessing what his policy will be. The main issue has been whether it means more protectionism, what it means for metals, and whether there is going to be reflation.”.
* With additional reporting by Reuters
BUSINESS REPORT