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Rand climbs, stocks recover in global return to risk

Traders bagged the currency on the cheap.

The rand rallied more than one percent on Tuesday, shrugging off still-high unemployment figures and a plunge in manufacturing output to hit a three-session high, as a bounce in risk demand globally was spurred by easing coronavirus fears.

At 21:06 the rand traded 1.23% firmer at 14.7939 per dollar.

Unemployment remained at an 11-year peak of 29.1% in the fourth quarter while manufacturing output for December shrank 5.9% year-on-year – further indications of South Africa‘s economic growth being in dire straits.

Read: Unemployment rate unmoved

But traders overlooked weak fundamentals and bagged the currency on the cheap after the unit’s 8% slide since the beginning of the year.

The dollar retreated from a four-month high against the euro on Tuesday as risk appetite improved, helped by a slowing rate of new coronavirus infections.

Comments by Federal Reserve Chairman Jerome Powell on Tuesday affirmed the view that the U.S. central bank is unlikely to change interest rates in the near term, adding to the attractiveness of high-yielding currencies like the rand.

The South African central bank cut interest rates to 6.25% in January and analysts are pencilling-in at least one other cut by year-end while inflation remains near multi-year lows, making the real return on local assets relatively high.

“Risky assets like the Rand will start to claw back some of its losses on the back of the reduced fear,” said traders at TreasuryOne in a note.

“As Chinese production starts again and the full impact of the coronavirus can be determined, maybe sentiment will shift back to where it was at the beginning of January, and the rand can trade stronger.”

Bonds were flat, with the yield on the 2030 government issue steady at 8.865%.

On the stock market, the Top-40 index rose 0.38% to 51,201 points, while the broader all-share was up 0.23% to 56,891 points, with the blue-chip index led higher by a near 4% bounce in fuel-maker Sasol almost wiping out the previous session’s slide.

Miners Sibanye and Impala Platinum were also on the up, by 1.72% and 1.53% respectively.

Spar however, saw shares down 3.77% by the close, after the grocer released a modest 18-week trading statement showing sales in Southern Africa increased by only 4.9%, due to weaker consumer spending.

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