The South African rand is showing significant growth, approaching the R16 mark against the dollar. This rise is one of the strongest since the start of the war in Iran. In the early afternoon trading session, the rand traded at R16.12, up from a recent high of 16.98.
Nkosinatsi Nsibandi, portfolio manager at Abax Investments, noted that the rand has entered the range of R16.10 to R16.25, which is the strongest level since the beginning of March. Before July, the currency fluctuated between R16.35 and R16.45, but the decision by the South African Reserve Bank (SARB) to keep the repo rate unchanged at 7% triggered an initial sharp sell-off.
Support from international markets
Nsibandi explained that the initial reaction to SARB weakened the currency, but then global markets provided a strong impetus. The rand received support from international markets, particularly due to the weakening of the US dollar, which followed unexpectedly weak US employment data. He emphasized that the overall weakening of the dollar became the main driver for the growth of higher-yielding emerging market assets, and the rand was in an ideal position to capitalize on this trend.
According to Nsibandi, the recent rise in the rand was driven by much less influence from domestic factors and was almost entirely dependent on the weakening dollar, softer US data, and strengthening gold prices, which exceeded the $4400 mark.
Annabel Bishop, Chief Economist at Investec, reported that the rand strengthened after the publication of the Federal Reserve's Open Market Committee meeting minutes for July. The minutes showed that officials remain concerned about inflation but did not show the aggressive trend toward interest rate hikes that financial markets had feared. Bishop interpreted these minutes as less 'hawkish' than expected, which contributed to risk sentiment in financial markets and the weakening of the dollar, thereby helping the currency move towards the R16 level against the dollar.