Investec chief economist Annabel Bishop said risk aversion rose, however, weakening the rand somewhat as markets worried that the labour market has become too weak. Picture: Henk Kruger Independent Newspapers
The rand began the week on the back foot as it struggled to find direction, weakening 0.6% to R17.95 against the US dollar in early morning trade before trying to claw back some losses to R17.88/$1 in the afternoon.
This comes as the rand, which had initially firmed to R17.60 levels in the wake of the US payrolls data, closed softer on Friday at R17.85/$1 after the greenback recovered later in the New York trading session.
Traders yesterday said they expected the trend of the weakness in the rand to continue for now as US jobs data disappointed.
The key US labour market data release showed the non-farm payrolls figure was revised down to 89 000 in July, from 114 000, a very weak outcome which added to market concerns on Friday along with August’s lower-than-expected data outcome.
Investec chief economist Annabel Bishop said the rand ran stronger at the end of last week, to R17.61/$1, but then was pushed back towards R17.90/$1 as US data on the labour market came out weaker than expected, with non-farm payrolls disappointing by more than 20 000, coming out at 142 000 in August.
Bishop said risk aversion rose, however, weakening the rand somewhat as markets worried that the labour market has become too weak, with July’s low outcome and August’s poor, lower-than-expected figure adding to worries about a future weaker US economy.
“While the rand has weakened, reaching R17.96/$1 today, as market concerns undermined risk assets and so emerging markets (EM) portfolio assets and currencies, the currency is volatile, and reactive, and can run back quickly on better-than-expected data,” Bishop said.
“To date, the rand has averaged R18.14/$1 for the third quarter of 2024, and we continue to expect an average of R18.00/$1 this quarter, with volatility on US data prints ongoing affecting the rand.
“The rand has seen less volatility so far than prior to May’s national elections, and the improvements in electricity capacity and the GDP growth outlook, have provided some underpinning to the rand, as investors have become more confident on SA.”
However, Citadel Global yesterday predicted a positive outlook for the rand for the rest of 2024, with estimates for the end of the year ranging from R17.80 to R18.30 to the US dollar.
Bianca Botes, director at Citadel Global, said the rand remained one of only five EM currencies out of a total of 23 that have been trading stronger against the dollar in the year to date, having ranked third on the list during the past month.
“The relatively strong rand-to-dollar exchange rate range we foresee for the end of 2024 depends on certain variables and assumptions used. However, we believe there is room for the rand to gain even more ground – to end off the year much stronger than these levels if a few things work in the favour of the EM basket of currencies,” Botes said.
“Yes, the formation of the Government of National Unity (GNU) was seen as positive by market participants and assisted in the unwinding of some risk premia that was priced into the rand. We have also seen some positive policy come to the fore.
“In the longer term, the rand will, however, take its cues from global events, specifically the dollar performance and announcements by the US Federal Reserve. The softer dollar is supportive of the rand.”
Botes said it was important to note that the rand’s relative strength cannot be attributed only to South African factors.
“Locally, we still need to see if the current state of electricity in the country can be sustained, that logistical matters such as Transnet can be resolved, and that further reforms can create a business-friendly environment to stimulate growth and employment,” she said.
“From a more holistic perspective, you need a risk on environment and rising commodity prices for EM currencies – and especially those which are commodity driven such as the rand – to benefit.”
BUSINESS REPORT