Rand trades firmer as 'oversold' dollar could weaken more

The rand was firmer in late afternoon trade on Wednesday‚ and was poised to hit 18-month best levels if the dollar continued to lose ground.

The rand was on the front foot for most of the day‚ supported by positive economic data.

The current account deficit narrowed to 1.7% of GDP in the fourth quarter‚ from 3.8% in the third‚ the best level in six years. The consumer price index (CPI) dropped to 6.3% in February from 6.6% in January‚ the lowest rate in more than a year.

“The rand remains resilient‚ supporting a better inflation and interest rate outlook‚” said Old Mutual Multi-Managers analyst Izak Odendaal.

At 3.46pm the rand was at R12.5938 against the dollar from R12.6716.

The rand was at R13.5993 against the euro from R13.7121 and at R15.6628 against the pound from R15.8241.

The euro was at $1.0799 from $1.0807 after hitting a daily firmest level of $1.0819 in intraday trade.

The rand had previously failed to reach the technical area at between R12.52/$ and R 12.54/$‚ analysts at Momentum SP Reid said.

“But the local currency was likely to make a second attempt at reaching this level in the sessions ahead‚” Momentum said.

The dollar was undoubtedly oversold‚ but weakness in short-term momentum figures indicated a fair likelihood of a run by the euro to $1.0910‚ which would favour the rand‚ Momentum said.

The rand has confounded sceptics as higher interest rates in the US were seen as a catalyst for driving the local currency lower‚ similar to what happened in 2013 when the US Federal Reserve envisaged higher rates.

The then “taper tantrum” caused a huge sell-off in the rand‚ together with other emerging-market currencies.

The Fed hiked US interest rates last week‚ indicating a further two hikes might be in the offing for the rest of the year‚ against market expectations of at least three in 2017.