Rand improves amid a ‘vicious pass the parcel’

Cape Town – While the rand improved the most compared to other emerging market currencies on Wednesday, it is still the worst performer this year, having fallen 6.5% to date.

It seems while the rand’s improvement is good news, independent treasury specialist to corporates, Adam Phillips of Umkhulu Consulting, said in a note on Wednesday that the “vicious pass the parcel continues with the rand”.

“We started yesterday around the R16.90/$ and by mid-afternoon it was R16.43/$, only for it to touch R16.77/$ before dipping back to R16.42/$ in Asian trading and at the moment we are just above R16.50/$.”

“At the moment 10 cents is not a big move,” he said. “During the SA session it was one -way traffic with local companies sending in wave after wave of selling, even though the manufacturing data was very poor.”

Phillips said comments by Mark Mobius of Templeton investment fame that the rand had been hit too hard "were a help".

“However, if one goes back to late last year and looks at economic numbers, it is clear that we could be heading for a recession unless demand picks up and the country as a whole can take advantage of the weak currency,” he said.

Emerging market currencies like the rand have been hit hard by China’s waning demand for commodities, but it was eight days of madness on China’s stock markets that caused even more pain.

The Bloomberg Commodity Index has slumped 5% in 2016 with oil dropping below $30 for the first time in 12 years on Tuesday.

“China aside, the overwhelming influence on markets globally is the unrelenting slide in oil prices. For the time being, the yen should stay pretty well bid, and commodity currencies under the pump,” National Australia Bank’s Ray Attrill told Bloomberg.

Phillips said the yuan is now steady, as Chinese December trade data left a surplus of 382.1bn yuan, with exports up and imports down.

“For the moment the central bank is taming the market, but as soon as they let go it we could see the same story unless consistently good numbers keep appearing,” he said.

“All equity markets are having a good day and this may help the rand to stay around these levels,” he said.

“Just be careful in dealing in the rand and expect wide margins,” he said.

- Additional reporting by Bloomberg.

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