Rand rally continues on the back of easing geopolitical tensions

The rand dipped below the R12.20 mark to the US dollar on Monday morning on the back of easing geopolitical tensions.

The local unit, along with other emerging market currencies, made gains near the end of last week as geopolitical tensions eased, according to analysts.

It dipped below the R12.20 mark by 09:44, trading 0.43% stronger at R12.19 to the greenback.

“The rand can be expected to test stronger levels before slipping back to the R12.30 mark,” said Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions. Analysts from NKC Economics expect the rand to trade within a range between R12.10/$ and R12.35/$.

“Given the change in the global sentiment, the focus now moves to the outlook for local bonds,” said RMB’s fixed income specialist Gordon Kerr.

“While the global environment improves, offshore investors continue to remain better sellers. Local demand remains robust, specifically in the long end of the curve.

“With these bonds trading above 9%, they continue to hold the most value when assessed against the local inflationary backdrop,” he explained.

Kerr said it was hard to determine when the offshore selling would end. “A stable global macro backdrop will give locals more confidence to buy and will help ensure that there is no panicked risk-off move in yields.

“As such, the ingredients for bond yields to move lower are there, it really is just a question of timing.”

Andre Botha, senior currency dealer at TreasuryONE, shared views that the rand would strengthen further on the back of a weakening dollar and as sentiment turns to emerging markets.

“We have seen the risk sentiment do a 180-degree turn as equity markets are in the green again and gold has picked up its head a little after looking a dead certainty to break below $1 300 last week,” said Botha.

The rand is expected to remain subjected to international sentiment on Monday and may continue riding its wave. “There is a distinct possibility that the rand could test the R12.00 level during the week as sentiment will play a significant role in the rand movements this week as the data and event cupboard is rather empty,” said Botha.

This week the quarterly report on GDP statistics is expected for the Eurozone and Japan. US retail sales data is also expected to be released. Locally, retail sales will be released as well as quarterly labour force statistics.

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