The big question for the rand right now

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The rand has gained significant ground in recent sessions, benefiting from a sense of risk and optimism around a global economic recovery.

Local unit strengthened against the dollar in morning trading on Thursday, as investors weighed the US Federal Reserve’s pledge to keep interest rates low for a while against inflation likely higher, Reuters reported.

Minutes of the last The Federal Open Market Committee (FOMC) The meeting released on Wednesday evening indicates that the US central bank will continue its accommodative stance until there is sufficient evidence of continued and sustainable economic growth, even if inflation exceeds the desired 2% mark, a said Bianca Botes, Executive Director of Citadel Global.

Lower interest rate expectations in the United States are boosting investor appetite for emerging market assets such as the rand, which offer higher yields but carry more risk, Reuters reported.

Combined with the easing of trade restrictions and further progress in vaccine deployment, market optimism has helped to heighten risk sentiment and support a strong performance in equity markets, said Sable International.

The rand traded at the following levels against the major currencies:

  • Dollar / Rand: R14.48 (-0.26%)
  • Pound / Rand: R19.92 (-0.74%)
  • Euro / Rand: 17.20 R (-0.19%)

RMB Global Markets strategist and head of research, John Cairns told Business Day TV that there were some “puzzles” surrounding trading in the rand.

Cairns noted that R14.40 against the dollar is a post-pandemic low for the rand, having traded above R18.00 a year ago, during the lockdown.

“The big question now for the rand market is, are we just going to stay within these ranges – in other words, are we going to bounce back from that R14.40 / R14.50 level, or can we actually break lower? That would mean the rand would now be stronger than it was before the pandemic hit, ”he said.

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Global news, he said, has been very positive. “I still think the R14.40 is going to hold up… in other words, the end of the rand pickup begins,” Cairns said. He said the current global environment is very risky, fueling demand for riskier but high yielding currencies.

“What we are seeing is that every time the rand strengthens, our importers rush to buy dollars at better levels, which limits movement. It’s a big fight going on. Cairns said he was still a bit skeptical about the R14.40 breaking, but admitted he had to reconsider his skepticism in recent sessions.

The strategist said the rand should have won on the global economy and vaccine news, but it’s the extent of its gains that has been a headache. “We can find partial answers to this puzzle,” Cairns said.

“The first is to look, our trade account is doing so well, our exports are booming because of commodity prices, imports are still limited.” He said there were other technical issues, the futures points were distorted because of what the Reserve Bank is doing in the money market – making short selling against the rand very expensive for speculators.

Forward points are the number of basis points added to or subtracted from the current spot rate of a currency pair to determine the forward rate for delivery on a specific value date.

Dollar hopes

US Fed officials were united on the need to see more progress on the recovery before scaling back their massive bond-buying program, according to minutes from last month’s meeting released on Wednesday. Policymakers downplayed inflation risks, saying the recent surge in Treasury yields reflects stronger growth prospects, Bloomberg said.

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Traders have downgraded their most aggressive positioning to get interest rates to start rising by the end of next year, he said.

Turbulence is expected to return to the market in the second quarter, Banny Lam, head of research for CEB International Investment Corp, told Bloomberg TV. Along with the emphasis on inflationary pressures, “we should put more emphasis on the theme of renewed economic growth.”

Meanwhile, Treasury Secretary Janet Yellen has unveiled details of a plan to bring roughly $ 2 trillion in corporate profits into the U.S. tax net. This would help fund government spending initiatives, potentially reducing reliance on more borrowing that could drive rates up, Bloomberg said.

Vaccine progress

Local markets were also boosted by news that South Africa has signed an agreement to purchase 20 million doses of Pfizer vaccine.

Health Minister Dr Zweli Mkhize said earlier this week that payment processes are also underway to secure the deal in the coming days.

In addition, with the Johnson & Johnson (J&J) deal also fully concluded, Mkhize believes this paves the way for a significant and rapid expansion of the country’s vaccination program against Covid-19.

“We can also confirm that the last 200,000 Johnson & Johnson doses for the Sisonke protocol are expected to arrive on April 10, 2021. These doses will take us to the last mile of the Sisonke protocol, which is expected to become one of the most foundational studies. of the history of the pandemic, ”the minister said on Monday.

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Likewise, he said the country will also embark on an implementation study with a limited number of doses of Pfizer used among healthcare workers, which he describes as another valuable contribution to the science of immunization. massive.

“In preparation for the mass vaccination campaign, we undertook an in-depth study of the Sisonke protocol in order to learn lessons from the program and improve the efficiency of future operations.”

In addition, stakeholders continued to engage in all sectors to “sensitize” the government to the needs of various communities.

“After further inspection and reflection, the Department of Health worked on a revised strategy to ensure that the vaccination campaign targets the most urgent public health and the economic relief that vaccination is expected to bring.

“These revisions will require extensive but urgent consultations to ensure that the final program expresses the will of the people,” the minister said.

Once the ratification process is complete, the ministry will announce to the public the details of the revised vaccination program and ask the first group of eligible citizens to register on the electronic vaccination system.

“I would like to thank all government officials, business partners and social partners who work tirelessly to ensure that the program is effective, safe and exemplary. We look forward to announcing the details in the coming days, ”he said.


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