Rand recovers as panic over Trump eases

Cape Town - The rand recovered some of its losses of the last week on Monday as the panic of Donald Trump's presidency seemingly eased, but the unit was still moving in a wide range between R13.16 and R13.27 to the US dollar in morning trade.

By 11:08 the local unit was trading at R13.18 to the greenback after strengthening to R13.16 earlier in the session. The rand closed at R13.23 in New York on Friday.

Markets were in turmoil late last week on reports of Trump's ties to Russia and as his axing of FBI director James Comey came under scrutiny. This caused a risk off scenario for emerging market currencies, with the rand bearing the brunt, said dealers at TreasuryOne.

Wall Street, however, managed to gain on both Thursday and Friday, to close the week only 0.4% lower and the futures markets point to further gains on Monday morning.

"More impressively, the VIX 'fear gauge index' of expected volatility has dropped right back to 12, a level consistent with a very low risk environment," said RMB currency strategist John Cairns in a note to clients.

He said risk currencies have lagged the Wall Street advances, which provides scope for rand gains, "although the going will be much tougher than that at the end of last week".

The rand, meanwhile, is back in line with other risk currencies, having unwound its outperformance in the mid-week madness, said Cairns.

He said dollar weakness is certainly helping the USD/ZAR downside and "sentiment remains negative towards the dollar: long positioning in the futures market on EUR/USD is at a three-year high".

"With no real news scheduled for today, I believe the most important factor to watch is the reaction of investors to see if they fully absorbed the drama from the US and whether this will continue to spill over into this week," said Gerard van der Westhuizen, dealer at TreasuryOne.

Cairns said event risk is concentrated from Wednesday through Thursday. "Fed minutes are the highlight, with markets looking for signs on how it plans to unwind its asset book."

Locally, Cairns expects the SA Reserve Bank to be neutral to dovish as it assesses a better inflation outlook, but the scope for cuts remains constrained by the domestic political situation.

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