Something rather strange is happening to the rand: it is beginning to look almost respectable.
On Monday morning it was hovering around R16.02 to the dollar, having briefly broken below R16 last week — territory it had not closed in since before the Iran war erupted in February. That makes the rand roughly 3% stronger against the dollar since the start of the year and about 8% stronger than a year ago.
The obvious explanation is dollar weakness, and there is plenty of that about. The greenback is near multimonth lows as investors fret about US debt, softer economic data and the direction of American interest rates. A weaker dollar tends to be catnip for higher-yielding emerging market (EM) currencies, and the rand, being one of the most liquid and tradable, generally gets an extra helping.
But it is not all Washington’s doing. Since January the rand has also strengthened about 3% against the euro and 1.5% against sterling. It has gained nearly 10% against the Indian rupee, though it has lost ground to the Brazilian real. So this is not a universal rand triumph, but nor is it merely a trick of the dollar denominator.
There are some home-grown reasons too. Gold and other precious metal prices have been supportive, inflation fell more sharply than expected to 4.3% in July, South African bond yields remain juicy and foreigners bought a net R23.1bn of government bonds in the first week of August. Bloomberg calculated that the dollar-funded rand carry trade was the best-performing of 22 EM currencies early this month.
So is R16 the new R18?
Steady on. The rand remains a famously high-beta currency: when the world gets nervous, it tends to be among the first things sold. A renewed oil shock, escalation in Iran, fiscal slippage at home or a sudden dollar revival could reverse the move quickly.
But if the rand can spend weeks rather than hours below R16 while continuing to strengthen against currencies other than the dollar, we may have to stop calling this a rally and start calling it a trend. Even “mighty” might eventually lose the quotation marks.
