RMB: South African Rand's Rally Might Take a Breather

The Rand has been one of the best-performing major global currencies this week but could now be due a period of consolidation. 

The currency's strength has pushed GBP/ZAR to the lower end of its April-May ranges and the exchange rate is now seen around 16.62.

With markets taking a shine to the Rand once more the USD/ZAR is seen at 12.88, a sharp retracement from the 13.20 seen on Wednesday while EUR/ZAR is at 14.45, the lower band of the range traded in May.

“The Rand’s sharp gains mostly represent an outperformance,” says John Cairns, an analyst with RMB citing the positive global investment conditions as being the prime driver.

Positive jobs data out of the US this week have spurred a generally positive global investment environment which tends to favour the South African currency.

It would be easy to suggest ZAR is outperforming owing to a review by Fitch Ratings, but RMB are sceptical that this is the driver behind ZAR at present.

“It surely came as no surprise to anyone that they kept the rating unchanged; and while their statement was more positive than expected, this is hardly game-changing stuff for SA,” says Cairns.

Above: The Rand is seen easily outperforming the major currencies over the course of the past month.

The more interesting conclusion, argues Cairns, “is that the Rand retains a natural tendency to push stronger.”

This strengthening bias was strongly evident in 2016 and one could argue that it has continued in 2017 but that the trend has been disguised by the once-off sharp losses seen after the firing of the finance minister.

“We are open-minded to this view although our core thinking is that the global environment, particularly the strength in the dollar, as well as the local political troubles will restrict any significant further rand gains this year,” says Cairns.

Whatever the cause of this week’s strong performance by the Rand, RMB say they would be cautious in pushing Rand gains much further for now.

“The Rand already has done a lot, matching the gains seen when speculation about an ANC NEC recall of the president was so rife last week,” says Cairns.