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Rand capitalises on emerging market rush

The overall mood in the markets at the start of the week appeared to be positive as the influx of money into developing-market assets served to pull the Rand even higher. Strong jobs data in the US further lowered hopes for any interest rate hikes in the world’s biggest economies, fuelling a rush in demand for emerging market currencies.

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The Rand opened last week at a ten-month-high. The currency gained more than 7% in ten days, breaking through technical resistance of 13.350 against the US Dollar on Tuesday. The Rand’s bullish week stood in complete contrast to the British Pound. The GBP-ZAR tumbled from the week’s opening levels of 17.920 to a new 18-month low of 17.1976 by Thursday.

There was cautious trade on Thursday ahead of local mining and manufacturing data releases by Stats SA. The Reserve bank kept interest rates at 7%, citing the weakness in the economy as reason to hold off any hikes; mentioning that it was ready to resume if inflation picked up again. These events – as well as news of South Africa’s local government election results, which saw the ruling ANC losing considerable support – augmented market sentiment towards the Rand throughout the week.

What to look for this week: The Rand seems poised to go even higher as the Reserve Bank Governor, Lesetja Kganyago, implied on Friday.

Kganyago remarked: “The recent strength of South Africa’s Rand is providing a cushion for the country’s policy makers and shouldn’t lead to complacency in tackling inflation.”

Internationally, investors will also be looking out for US FOMC meeting minutes on Wednesday to assess the risks to its long-run goals of price stability. As always, these minutes will have an impact on emerging currencies like the Rand.

-Calvin Matsaure

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