Sat, 15 Aug 2020

Rand strengthens to below R17/$

02 Jul 2020, 20:40 GMT+10

The rand arrested its decline on Thursday, strengthening to below R17 and seemingly ignoring data that South Africa's economy contracted for the third straight quarter in the first three months of 2020, and that the Reserve Bank expects GDP to shrink 32.6% the second quarter of the year.

The local currency broke below R17/$ on Thursday morning, reaching R16.89 by 09:26am, as the US dollar eased overnight. Even before it breached the R17 to the greenback, it was already outperforming its emerging market peers, said Andre Botha, senior dealer at TreasuryONE.

Analysts say the rand may have benefited because of increased risk appetite on the back of upbeat global economic data, which may have overshadowed the impact of the local events.

"Better than expected manufacturing data out of the US and Germany, as well as positive Covid-19 vaccine news, has allowed some risk appetite return," said Botha.

Bianca Botes, executive director at Peregrine Treasury Solutions, pointed out that another factor is that this June SA recorded the fastest expansion in the local manufacturing sector since August of 2013. This improvement, together with positive global data, seems to have helped neutralise the country's grim GDP figures.

The Absa Manufacturing PMI rose to 53.9 in June 2020 from 50.2 in May 2020, showing good rebound in SA's manufacturing sector. Botes said the US' jobless claims data could strengthen the Rand even further.

"Non-farm payrolls and initial jobless claims from the US, to be released this afternoon, will be crucial in determining the momentum of the move stronger, with a trend towards R16.50 in the short term back on the cards," she said.

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