Things are looking up for the rand – BusinessTech

The rand is likely to strengthen after being impacted by the fears of the 2024 national election and the attempted assassination of Donald Trump.

The recent period of rand volatility amid heightened local post-election uncertainty has been replaced by greater sensitivity to global events, particularly the US elections.

“The rand has been trading just over 1% weaker since Monday, and while increased volatility is on the cards, we are still looking towards further rand strength,” said Bianca Botes, Director at Foreign Exchange and treasury experts Citadel Global.

The rand is now set to retain an improved position following the unwinding of the local risk premia, and it will now be influenced by global markets.

Botes said that the rand sold off during the week aligns with other emerging markets.

“Political analysts believe the events from this weekend pretty much secured a Trump victory, and therefore, Trump policy needs to be priced in – including larger deficits and import tariffs.

“While these political events will heighten volatility, the data and subsequent US Federal Reserve (Fed) action will likely drive the broader direction of the United States Dollar (USD) and considering soft data and increased bets for rate cuts, the dollar will likely struggle to maintain a strengthening momentum purely driven by the political landscape.”

The rand initially started the week at R17.98/$ and is now at R18.16/$.

Botes noted that the Dow Jones hit an all-time high at the start of the week, while Chinese stocks were muted due to concerns over relations with the US should Trump be reelected.

However, comments from Jerome Powell showed growing confidence from the US Federal Reserve that inflation is approaching its 2% target, bolstering the mood.

Thus, investors are looking to riskier markets on the possibility of interest rate cuts by the Fed.

The rand has also recently been buoyed by the formation of the Government of National Unity (GNU) between the ANC, DA, IFP and eight other parties.

However, the gains from the GNU were quickly eliminated when it reached R18.59/$ in the middle of last week.

“It is clear that the rand remains volatile in the wake of a multi-faceted economic and political global environment. The rand is, however, finding itself on a stronger footing than at the start of the year and will now start taking its cues mainly from international events again.”

Although the rand experienced some depreciation in July due to cabinet uncertainty amid tense talks between the ANC and DA, it improved to its pre-election level.

Had the election not produced a positive outcome, the rand would have depreciated to R20/$, but the formation of the GNU could now see the rand reach the mid-R17s mark.

“While the election and coalition talks recently took centre stage, international data, particularly United States (US) data, continued to set the broader market tone. The situation is normalising again.”

Investec chief economist Annabel Bishop also contended that the dollar’s rally will likely be short-lived and that the rand should again pick up steam as market risk aversion works its way out of the system.

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