Don't expect rand boost to keep on going - analysts

Cape Town – The rand, which continued to strengthen against the dollar, pound and euro on Tuesday, should be seen cautiously, analysts warned on Tuesday.

“The global environment remains rand-friendly,” said RMB analyst John Cairns on Tuesday in his morning update.

“The rand’s outperformance, however, suggests some caution,” he said. “Moves have not been so out of line as to suggest the rand should pullback sharply, but we suspect the market will be cautious in pushing the rand too much further ahead of other risk currencies.”

The rand/euro dipped below pre-Nenegate levels for the first time on Monday, a term used to describe the December 9 event that saw President Jacob Zuma back down on an unknown lawmaker taking leadership of the Treasury. The rand/dollar was also trading below pre-Nenegate levels on Monday.

By Tuesday at 8:00, the rand was trading 1% stronger to dollar at R14.41, 0.7% stronger to the euro at R15.97 and remained level against the pound at R18.83.

Umkhulu Consulting’s Adam Phillips said on Tuesday he was also concerned the rand might require a correction.

“We have not seen these levels on the rand since the night of the 22nd June (the night of the UK Brexit referendum) and I am still concerned that a correction may be due,” he said.

Phillips doubts the manufacturing and production data to be released by Statistics SA on Tuesday will change the rand’s currency’s “picture”. However, he said “there could be more movement tomorrow when the retail sales are announced”.

Cairns explained that Wall Street made fresh record highs on Monday night, while the pound bounced as the FTSE surged into bull territory and as the elevation of Theresa May to prime minister removes some UK political risk.

“And inflows continue into emerging markets, most particularly South Africa,” he said.

NKC Research said on Tuesday that the rand rebounded after Japanese Prime Minister Shinzo Abe ordered further fiscal stimulus in Asian economy after winning the latest election by a comfortable margin over the weekend.

NKC expects the rand to trade between R14.30/$ and R14.70/$ on Tuesday.

RMB analyst Gordon Kerr said emerging markets remain the flavour of the week, helping to send risky assets stronger.

“The move helped the R186s to close over 10bp lower, with the longer-dated bonds being the best performers,” he said. “At the moment our bonds continue to remain a function of the currency, with bonds quickly becoming offered when the dollar gains ground.

“Given how quickly the currency can sell-off, this places our bonds on quite lose footing and we would be wary of their ability to hold onto gains to the downside.”

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