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‘Bulletproof’ rand reclaims top spot among emerging-market peers

After being knocked off the top spot during last month’s bout of volatility.
Image: Bloomberg

The rand has reclaimed its position as the best-performing emerging-market currency this year after being knocked off the top spot during last month’s bout of volatility.

A burgeoning trade balance and ample dollar liquidity are fueling the rebound and prompting traders to take bearish bets off the table, bringing its year-to-date to gain to around 4.2%.

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Since falling to a five-month low on August 19 amid speculation the Federal Reserve may start scaling stimulus sooner than expected, the South African currency has advanced 8% against the dollar, double the gain of Brazil’s real.

“At our morning briefing, the local unit was described as a rattlesnake and bulletproof,” Nema Ramkhelawan-Bhana, a strategist at Rand Merchant Bank in Johannesburg, wrote in a client note. “It sounded rather like an episode of Mad Max. Yet, the metaphors are apt in the face of the rand’s unrelenting strength.”

South Africa’s current-account surplus reached a record in the second quarter as elevated commodity prices boosted exports, while imports moderated as the economy struggled to emerge from a contraction.

Meanwhile, an International Monetary Fund Loan and additional Special Drawing Rights, resulted in a flood of dollars held by the central bank, which it has to sterilise by purchasing rand in the forward market, leaving lenders with a surplus of dollars.

As a result, the cost of borrowing the local currency against the greenback for one year in the swap market climbed to 105 basis points this month, more than triple the five-year average. That’s made it “awfully expensive” to fund long-dollar positions against the South African currency, said Ramkhelawan-Bhana.

The premium of options to sell the rand versus those to buy the currency over the next month, known as 25-delta risk reversal, has narrowed to two percentage points, the lowest in a year.

© 2021 Bloomberg

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Not too long ago we had massive looting and burning of shopping malls.

The retail shares actually went up.

I don’t understand it, as in when your business or company is burnt down and looted your business loses income and then the logical thing is for the share to crash.

Me thinks….Less Labour costs to work with…. hence more efficient.
The shortage creates more demand.

On the Big Max Index the Rand is still massively undervalued, even at current levels. Our current deficit account is on a record surplus, meaning exports have been much higher than imports. That is thanks to mainly commodities. In other words the demand to buy Rand is currently more than to sell Rand. Ultimately the price of an asset is determined by demand and supply. These are cold economic facts and not a political opinion. Therefore, if you are able to ignore your political opinion for a moment, it should not come as a surprise the current Rand strength.

Yawn. The big MAC index has been debunked endlessly and only appeals to the kind of people who are fascinated by freakanomics type trash.

“South Africa’s current-account surplus reached a record in the second quarter as elevated commodity prices boosted exports, while imports moderated as the economy struggled to emerge from a contraction.”

Well done SA Inc. We obviously still have enough people able to make things happen. Just think what could be achieved with law and order and sound economic strategy in place.

Brilliant performance by South Africans. We rock!!!

The Rand has been short-term speculated to the end of is DXY tether. Unless DXY is re-invigorated this delusion is history.

Long term trend = rand decline against usd. Short term gains offer opty to increase offshore exposure. Dollar main driver of exchange rate, not local economy. Further rand appreciation can be expected over short term due to dollar weakness, but HUGE gains after the that, even more than the gains during March 2020 flash crash!

End of comments.

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