Dollar is no barrier to the rand’s region-beating gain

Strategists say there’s still room for appreciation.
Image: Jason Alden/Bloomberg

South Africa’s rand is one of the few emerging-market currencies still set for monthly gains after last week’s rout.

Four months of back-to-back declines have left the currency looking undervalued and strategists say there’s still room for appreciation. That’s even after jitters about Fed tightening put the rand’s rebound on hold last week, when it was the worst performer among peers against the greenback.

The rand was climbing again on Monday, set to end the month up almost 3% against the dollar and the only developing-nation currency outside Latin America to gain in January.

“The rand is still underheld, or net short according to our transactions,” said Geoffrey Yu, senior EMEA markets strategist at BNY Mellon. “Even if we take a breather, there will be interest in re-engaging.”

iFlow reports from BNY Mellon, which track purchases of foreign exchange, equities and bonds on a daily basis based on data about its $45 trillion assets under custody, show strong purchases of rand-denominated assets, Yu said.

Christian Wietoska, head of CEEMEA research at Deutsche Bank, sees few alternatives in local-currency bonds. He cited ongoing monetary-policy tightening in central and Eastern Europe, “idiosyncratic issues” in Turkey, Russia and Ukraine, as well as stretched valuations in Egypt.

“Despite the outperformance versus peers already seen year-to-date and the ongoing core rates repricing, we keep our structural bullish bias,” Wietoska said.

© 2022 Bloomberg L.P.

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