Cape Town - The rand is set to benefit as fears of a trade war between the US and China abate, according to market analysts.
“Easing trade fears has sparked new-found risk appetite, supporting emerging market currencies and the rand in particular, following Moody's decision to retain SA’s investment grade credit rating,” Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions, said in a morning update.
At 09:49 on Tuesday the rand was trading at R11.63 to the dollar, after opening at the same level.
As NKC African Economics noted, the Dow Jones industrial average, the S&P 500 and the Nasdaq composite indices closed higher on Monday, due in part to lessening fears of a trade war.
“It seems that the tensions in the global trade wars are abating with both President (Donald) Trump and China softening their stance overnight. This has caused a collective sigh of relief across markets, and we have seen ordinary risky assets like the stock markets ending well in the green,” said Andre Botha, a senior currency dealer at TreasuryONE in a statement on Tuesday morning.
On Wednesday the South African Reserve Bank’s monetary policy committee will announce whether it will reduce the repo rate.
This is the rate at which banks borrow money from the Reserve Bank.
“We expect a 25 basis-point (or 0.25%) cut in the interest rate. Much will be made of the tone of the MPC statement and whether we could see more cuts going forward which could cause a knee-jerk in the rand,” said Botha.
A 25 basis-point cut would lower the repo rate to 6.5% and the prime lending rate to consumers to 10%.
“Looking at the political landscape and economic sentiment, we feel that the rand is in a great position to gain some ground,” he said.
“Barring some unforeseen event, we could see the rand breaking below the R11.50 level and maybe trying to test as low as R 11.20.”
NKC Africa Economics, meanwhile, suggested that the rand would trade in a band between R11.55/$ and R11.75/$ on Tuesday.
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