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Cape Town – The rand continued its rally on Monday, outperforming other currencies a few days before the South African Reserve Bank (Sarb) announces its latest interest rate decision, with analysts expecting the repo rate to remain at 7%.
Trading 0.8% stronger against the dollar at R14.09 in morning trade, the rand was one of only three liquid currencies to gain against the dollar last week and has firmed around 4% versus its peer risk currencies, according to RMB analyst John Cairns.
“The rand continues to outperform massively,” he said in a note on Monday. “Effectively, this represents the local risk premium being unwound: more than half of the blowout since the latest Hawks-Gordhan story has been reversed.
“Rand gains have come despite the negative global backdrop,” he added. “The higher-than-expected US CPI figure and the large fine for Deutsche Bank have created generalised risk aversion as well as strong dollar gains.”
Consumer price inflation data – with the figure currently at 6% - is out on Wednesday, while the Sarb will announce its monetary policy committee decision on interest rates the following day.
“The central bank event risk is concentrated from Wednesday morning through Thursday afternoon,” said Cairns. “We expect the Sarb to remain on hold.
“Event risk this week is all about central banks, although almost certainly more about what they say than do,” he said. “The market prices only a 12% chance of the (US) Fed acting (on a rate hike), but we’ll all be watching for signs on whether they will hike in December.
“There is a bigger probability that the BoJ (Bank of Japan) cuts rates — which would potentially even get USD/ZAR through R14.00."
Umkhulu Consulting analyst Adam Phillips said traders pushed the rand too hard, which explains its positive gains.
“Maybe operators read that the public protector is still after our president and has interviewed a number of government officials,” he said. “Even (Finance Minister Pravin) Gordhan was questioned and I presume he was happy to attend, unlike when he was asked to by the Hawks.”
Public Protector Thuli Madonsela served a subpoena on the secretary of Cabinet as part of her investigations into state capture last week, as she moves to release a report into allegations that the Gupta family influenced cabinet post decisions.
