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EM-rand leads EMEA FX higher on commodity gains

The rand rose as much as 0.7% to R14.15 to the dollar, supported by rising gold, base metal, and iron ore prices.
Image: Shutterstock

Currencies in Europe, the Middle East, and Africa rose on Tuesday as the dollar continued its decline due to mixed labour data, with South Africa’s rand leading the gains on a rise in the prices of major commodities exported by the country.

Russia’s rouble rose 0.1% to 73.2460 to the dollar, while Turkey’s lira added 0.2%. Central European currencies moved about 0.2% higher to the dollar, and were flat to the euro.

The rand rose as much as 0.7% to R14.15 to the dollar, supported by rising gold, base metal, and iron ore prices.

The currency is now the best performing emerging market unit this year with a more-than 3% gain, overtaking Brazil’s real .

Improving economic trends have also helped sentiment over Africa’s largest economy, although analysts have cautioned that certain facets, including tax revenue and infrastructure spending, remain at risk from the coronavirus.

“Inflation risks remain subdued due to an exceptional performance of the rand and well-anchored expectations of households … which is in sharp contrast to other emerging and developed economies,” analysts at Credit Suisse wrote in a note.

“We expect the rand to stabilise at a slightly weaker level, consistent with a gradually narrowing current account surplus in H2 and a stronger dollar.”

The rouble rose 0.1% as oil prices reached their highest level since 2018. But gains in the currency were muted as the finance ministry flagged more foreign currency buying in July.

Turkey’s lira remained in focus after a bigger-than-expected spike in June inflation furthered the case for tighter monetary policy in the country. But hawkish signals from the central bank could put it at odds with the government.

Broader emerging market currencies rose on Tuesday, with the dollar on the back foot after weak payrolls data last week furthered speculation that the Federal Reserve would likely hold low interest rates for longer.

But concerns over rising cases of the more infectious Delta coronavirus variant bought down Asian currencies, keeping MSCI’s index of emerging market currencies flat for the day.

Stocks followed a similar trend, although most bourses in EMEA marked small gains. Russian stocks rose 0.5%.

In central Europe, Poland’s zloty fell slightly to the euro, after marking strong gains on Monday following somewhat hawkish comments from the central bank governor, Adam Glapinski.

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