Rand continues 2018 rally, as Kganyago sounds note of caution

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Cape Town – The rand has continued its stellar 2018 run, reaching highs of R12.10 to the US dollar on Thursday evening at 19:30, an exchange rate last seen in June 2015. 

The local currency is now R2.37 stronger against the greenback than it was in mid-November, when one dollar bought you R14.47.

TreasuryOne dealer Wichard Cilliers told Fin24 via WhatsApp on Thursday evening that the rand was benefiting from a number of different factors, including high yields, dollar weakness and healthy commodity prices.  

“The ZAR is still benefiting from the yield that is on offer in South Africa,” he said. “Our R186 bonds are still trading at 8.40%. The real yield pickup offered by stripping out inflation is trading at two year highs and, with interest not being cut, this will continue.”

“Commodity prices are also offering support to our currency, and the US dollar is also under pressure,” he added. 

SA Reserve Bank governor Lesetja Kganyago, briefing the media in Pretoria after the bank’s first monetary policy committee meeting of 2018, noted the rand had appreciated by 13.1% against the US dollar since the MPC’s last meeting in November 2017. 

But he cautioned the longer-term outlook for the local currency was mixed. 

“In the near term, the rand is expected to remain sensitive to sentiment generated by political developments. The favourable outlook for capital flows to emerging markets as well as the positive trade account balances are expected to be supportive of the rand,” he said.

“However, the lingering prospect of a credit ratings downgrade to sub-investment grade by Moody’s continues to weigh on the longer term outlook for the rand,” he said.  

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