Rand's robust run stumps analysts

Cape Town - The strength of the rand has caught many economists by surprise and its rally looks set to continue, according to James Paynter, founder of Dynamic Outcomes and a financial market analyst. 

By 13:10 on Thursday the rand was trading at R12.29 to the greenback, after reaching a two-and-a-half year high of R12.23/$ earlier in the session.

The local unit has firmed more than R2.00 since its high of R14.47/$ in mid-November. 

It is also trading R1.50 firmer than it did at the start of 2017, and is now stronger than it was in March before former finance minister Pravin Gordhan was reshuffled out of Cabinet. 

"If one looks at the weak fundamentals, the rand should actually have been weakening, but it has done the opposite. This is because the markets do not move based on fundamentals or rational thinking, but by mass human sentiment," said Paynter. 

He argued that the rand's rally has not yet run out of gas. 

Other market analysts have noted that the local unit has been strengthening based on positive sentiment around the election of Cyril Ramaphosa as ANC president. 

Ramaphosa is seen as more market friendly than his defeated rival Nkosazana Dlamini-Zuma. 

"The market still believes that the new ANC leadership is going to turn the SA ship around," Wichard Cilliers, currency dealer at TreasuryOne, told Fin24 on Wednesday. 

Cilliers added in a note on Thursday it was "hard to wrap one's head around" the rand's rally. "A mere 6 weeks ago the ZAR was trading at R14.40 and then everyone was worried about the ratings agencies and the downgrades. How much has really changed to South Africa in the past 6 weeks?"

He said the confidence that Ramaphosa's victory brought to the SA market is clearly massive.

Positive sentiment

"The question is will he be able to live up to this expectation? The selected ANC camp is clearly divided and will Cyril be able to steer the ship in the right direction?

"For now we can clearly see that the ZAR is by far the best performing emerging market currency. Our local bonds are also back at the levels seen before the medium-term budget speech, with the R186 currently trading at 8.56%. The R186s was trading at 9.55% just before the ratings announcement."

Cilliers said for now South Africa is clearly flavour of the month.

In addition to the Ramaphosa factor, an uptick in commodity prices and a weaker dollar have also helped the rand.

Paynter said current positive rand sentiment is a marked change from "the extreme rand-negative sentiment of two years ago".

"The break below R12.30/$ confirms our medium-term forecast for the rand to extend its gains into the new year. When everyone has turned rand-positive, you will know the rand has finally run out of gas. But we are not there just yet."

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