‘Bulletproof’ rand is the world's top emerging market currency so far this year

accreditation
0:00
play article
Subscribers can listen to this article

The rand has reclaimed its position as the best-performing emerging-market currency this year after being knocked off the top spot during last month’s bout of volatility.

It was trading at R14.10/$, R19.56/pound and R16.69/euro on Friday at lunchtime.

A burgeoning trade balance and ample dollar liquidity are fueling the rebound and prompting traders to take bearish bets off the table, bringing its year-to-date to gain to around 4.2%.

Since falling to a five-month low on Aug. 19 amid speculation the Federal Reserve may start scaling stimulus sooner than expected, the South African currency has advanced 8% against the dollar, double the gain of Brazil’s real.

“At our morning briefing, the local unit was described as a rattlesnake and bulletproof,” Nema Ramkhelawan-Bhana, a strategist at Rand Merchant Bank in Johannesburg, wrote in a client note. “It sounded rather like an episode of Mad Max. Yet, the metaphors are apt in the face of the rand’s unrelenting strength.”

South Africa’s current-account surplus reached a record in the second quarter as elevated commodity prices boosted exports, while imports moderated as the economy struggled to emerge from a contraction.

Meanwhile, an International Monetary Fund Loan and additional Special Drawing Rights, resulted in a flood of dollars held by the central bank, which it has to sterilize by purchasing rand in the forward market, leaving lenders with a surplus of dollars.

As a result, the cost of borrowing the local currency against the greenback for one year in the swap market climbed to 105 basis points this month, more than triple the five-year average. That’s made it “awfully expensive” to fund long-dollar positions against the South African currency, said Ramkhelawan-Bhana.

The premium of options to sell the rand versus those to buy the currency over the next month, known as 25-delta risk reversal, has narrowed to two percentage points, the lowest in a year.

We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For only R75 per month, you have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today.
Subscribe to News24
Rand - Dollar
14.73
+0.8%
Rand - Pound
20.17
+0.6%
Rand - Euro
17.29
+0.7%
Rand - Aus dollar
10.69
+0.4%
Rand - Yen
0.13
+1.1%
Gold
1,782.63
+0.5%
Silver
23.06
+2.5%
Palladium
2,042.04
+7.0%
Platinum
1,009.00
+5.4%
Brent Crude
74.36
+0.6%
Top 40
56,938
+1.5%
All Share
63,353
+1.6%
Resource 10
56,962
+2.0%
Industrial 25
81,495
+0.9%
Financial 15
14,175
+2.1%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Voting Booth
What potential restrictions on unvaccinated South Africans may make the biggest difference to public health, the economy?
Please select an option Oops! Something went wrong, please try again later.
Results
Limited access to restaurants and bars
11% - 117 votes
Limited access to shopping centres
15% - 150 votes
Limited access to live events, including sport matches and festivals
27% - 271 votes
Workplace vaccine mandates
47% - 483 votes
Vote