Rand briefly touches three-year high as dollar on back foot

Cape Town - The rand broke below the R12.30/$ level on Tuesday morning, and even tested R12.20 to the US currency. 

By late morning it was at R12.24/$. The last time the local unit was at the R12.20 level was around June 2015.

According to TreasuryONE dealer Andre Botha, there is no clear reason as yet for the currency's sudden surge, except the impact of the weaker dollar.

"No official headline for the current surge is forthcoming, but we are enjoying the fruits of a weaker dollar and possibly the after effects of the National Prosecuting Authority looking at the Guptas," Botha commented on Tuesday morning.

By late morning the rand was trading at R12.23.

Botha added that much of Monday's "lacklustre performance" of the market can be attributed to a public holiday (Martin Luther King Day) in the US.

"We saw the rand floating in a 10 cent range for most of the day (Monday), still looking for direction," said Botha.

"Even though the US was out of the market, it didn't stop the dollar from sliding further against the euro. The US dollar reached 1.2296 yesterday on the speculation that the European Central Bank might halt the quantitative easing programme abruptly instead of gradually tapering the programme."

In his view, the weaker dollar theme seems to be firmly entrenched for the first part of 2018.

"On the local side, we still await any real news regarding domestic politics which is a constraint on the rand rallying stronger. The rand is stuck between no-man’s land with global factors such as the weaker dollar and global yield-seeking behaviour favouring the rand," said Botha.

"However, the threat of local politics upsetting the applecart is also real. This has led the rand to trade in limbo as it is awaiting direction from either one of the two camps."

Momentum economist Sanisha Packirisamy also agrees it is likely mainly dollar weakness - the greenback is touching a three-year low - reflected in the rand's performance at the moment.

"Potentially, there may have been some additional uplift on recent political developments - speculation that President Jacob Zuma may not serve out his full term in the Presidency and an indication that law agencies are acting on state capture allegations," she told Fin24.

Bianca Botes of corporate treasury management at Peregrine Treasury Solutions said the rand breaking through the key support level of R12.25 briefly, touching on R12.20, was mostly driven by "political noise" coupled with the weaker dollar and strong commodity prices.

"The key, however, still remains in getting this to translate into gross domestic product (GDP) growth, stimulating the economy," said Botes.
In her view, some recovered confidence in the ANC is definitely helping the rand, giving it a boost. She expects the rand to remain within the R12.20 to R12.35 range on Tuesday.

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