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Rand Report: Currency strengthens in line with ongoing trends

Weekly Rand Report: Rand gains strength in continuity with current trends: Image: Supplied

Weekly Rand Report: Rand gains strength in continuity with current trends

The South African rand gained strength recently due to a weaker US market and conservative policies of the South African Reserve Bank.

by Sable International

14-05-2024 12:55

in Money Matters

Weekly Rand Report: Rand gains strength in continuity with current trends: Image: Supplied

Over the past week, the South African rand has shown increased strength, notably influenced by a weakening US market and conservative policies from the South African Reserve Bank (SARB). On Monday, the rand reached a notable rate of 18.30 against the US Dollar, its strongest position since 2 January 2024.

This appreciation is primarily attributed to a softening US labour market, as recent payroll data indicated employment levels were below expectations. Additionally, with investors anticipating potential federal rate cuts later in 2024, the US Dollar has underperformed compared to other major currencies.

The rand also strengthened against the British Pound, with the GBP/ZAR exchange rate dropping below 23. This movement followed the Bank of England’s decision to hold the interest rate at 5.25%, which was expected. However, the Pound’s sell-off was accelerated by the unexpected shift in the voting pattern of the Bank’s members, with two advocating for a rate cut compared to just one previously. Despite the Pound gaining strength against seven major currencies last week, its decline against the rand suggests a stronger South African currency.

The SARB’s stance

The SARB has indicated it will maintain interest rates until inflation pressures in South Africa ease. This stance provides the rand with some support against price fluctuations. Additionally, South Africa’s benchmark 2030 government bond saw an improvement, with yields dropping by five basis points to 10.465%.

With national and local elections approaching the end of May, increased voter engagement has been noted, which might also influence international investor confidence in the rand. However, election-related volatility is anticipated around the election dates, potentially affecting rand’s stability.

While the rand has shown resilience against the Dollar, its volatility remains a concern. Upcoming US inflation data (CPI) could introduce further fluctuations. Thus, while the rand has been performing well, its continued strength in the coming week is uncertain.