Rand has potential to strengthen further

THE rand has the potential to strengthen through the R12/$ level this week, traders say, after the local currency regained traction on Friday due to the greenback weakening against most major currencies.

Bidvest Bank chief forex dealer Ion de Vleeschauwer said the rand might go firmer than R12 to the dollar in the short term, though there is likely to be a fair amount of importer demand at these levels, which could weaken it again.

"The current rand strength is not sustainable as a stronger dollar scenario is intact. If US economic data is better than market expectations investors will buy dollars again. The US is going to raise interest rates in the relatively near future and this will strengthen US Treasuries, thereby luring more money back into the US economy."

The rand gained against the dollar late on Friday after US Federal Reserve chairwoman Janet Yellen adopted a more dovish stance than expected. Mr de Vleeschauwer said the currency market was very choppy on the day and the ranges were extreme due to uncertainty about when the US Fed would begin to increase interest rates.

"It is very difficult to call the market, and we have to get used to these extremities. The euro and the pound are also all over the place," he said.

"We should not consider the firmer rand a turnaround in the currency. Markets have been expecting a (US) rate hike in June, but it seems there is a fair chance it won’t happen. The dollar has been in an appreciating trend over the past two years and is now pulling back. The euro-rand, however, is very stable."

He said Eskom’s downgrade to junk status by rating agency Standard & Poor’s (S&P) on Thursday, after the recent suspension of four of its top executives, had undermined confidence in SA and may weigh further on the rand.

Eskom’s government-backed debt has been accorded a BB+ rating by S&P‚ the first level in the agency’s junk‚ or speculative debt‚ ratings. Major funds are prohibited from investing clients’ money in such bonds‚ thereby limiting the pool of lenders and making debt more expensive for the company.

-BDLive