The rand traded on the back foot on Friday as the market favored the safe-haven dollar, reversing recent emerging market gains, especially the rand. Despite surging commodity prices on the back of improved global economic growth sentiment, the rand may be falling behind as it battles to benefit from this turnaround with investors keeping their eye firmly on the dollar following recent statement by the Fed. Our local unit weakened to R15.4329/$, a level last traded in mid-January, to close off the week at R15.3594/$, its weakest close since early January.
The rand, a commodity-based currency, may be missing its moment as the oil price moved above key $65/barrel. Recent inflation fears have sensitized the market, with the rand moving R1 weaker in two weeks as investors placed their bets on rising US yields. But as inflation and commodity prices are positively correlated, with the expectation of an uptick in commodity currencies, the rand is still falling short, failing to piggy-back, as economic growth prospects remain paramount for investors, who prefer dollar safety.
The month of March has historically been a bad one for the rand, that weakened 62% of the time during this period over the past 21 years. With many factors at play, some for the rand, and most against, it will be interesting to see how the resilient rand manages to turn things around during this challenging time.
With very little on the local data card, anticipate global factors to drive markets.
The dollar continued to strengthen on Friday against G10 and emerging market currencies alike. February’s release of employment data most certainly aided with the recovery, as the US economy added twice as many jobs in February than anticipated. The US Senate also finally passed the $1.9trillion COVID relief bill this weekend, with a nail bitingly close 50-49 vote. The dollar index reached a high of 92.192 before ending the session at 91.977.
The Euro remains under pressure due to recent dollar strength and has fallen to levels last seen in November last year as a result. Tomorrow’s release of Euro GDP for Q4 2021 may bring some hope for the common currency if it points to a stronger turnaround in the Euro economy. The single currency reached a low of $1.1894 and ended the session at $1.1915.
Pound Sterling also remained under pressure against the dollar but continues to be much more resilient. The vaccine rollout across the UK has been very effective, but the release of UK GDP figures for January at the end of the week will be key to see how hard hit the economy has been as a result of this second hard lockdown. The pound fell to a low of $1.3779 and ended the session at $1.3841.
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