JOHANNESBURG – THE RAND SHONE yesterday and was expected to make further gains following a risk-on sentiment yesterday as investors dumped the dollar in anticipation of a favourable US presidential election outcome.
The market began pricing in the fact that Joe Biden would likely be the new US president as the incumbent Donald Trump’s move to challenge vote counting in the key states deepened sentiment of his impending loss.
The rand appreciated 0.24 percent to R15.78 against the dollar, its best level since March as it derived strength from a weaker greenback.
FXT’s Lukman Otunuga said the market was pricing in the prospects of lower stimulus spending for the US economy if Biden wins with a divided Congress, something that continued to weaken the dollar.
Otunuga said the sentiment would offer further support to the rand.
“Although the (US) presidential election remains a big deal, markets will most likely focus on the Fed meeting and its evaluation of the US economy amid the new coronavirus wave,” he said.
“Should the central bank sound dovish, this could end up weakening the dollar, consequently providing a tailwind to emerging market currencies like the rand.”
The sentiment stretched through to the market, with general retailers and banks stocks stealing the limelight.
The JSE All Share Index surged 2.92 percent to 55 225 points, while the Top40 Index inched up 2.97 percent to 50 762 points. The mining index also rose 2.54 percent to 49 005 points, while the banks index was 1.11 percent higher to 5 675 points.General retailers accelerated 4.07 percent to 4 177 points.
Analysts said that Biden could face a Republican-controlled Senate filibustering of his administration’s ambitions in much the same way they did during Obama’s presidency.
Wealth and asset management firm Anchor Capital said it might use any further rand strength to increase its exposure to US dollars in a phased approach.
Anchor Capital’s Nolan Wapenaar said policy was expected to be more predictable under a Biden administration.
Wapenaar said this would create a more supportive environment for emerging markets, and consequently also be supportive of the rand.
“We have been saying that, in the near term, a Biden victory will give us a rand/dollar exchange rate target of R15.75/$1. In the longer term, it also opens up possibilities for the rand to keep grinding stronger,” he said.
“In our view, R15 to the greenback has now become increasingly plausible.”
The markets were, however, concerned about the impact of a slowing global economic recovery due to rising Covid-19 cases as advanced economies were imposing new localised restrictions.
President Cyril Ramaphosa is set to brief the nation next week on South Africa’s lockdown strategy around the Covid-19 pandemic.
The Cabinet is concerned that South Africans have grown increasingly indifferent in their response to the pandemic and are no longer following lockdown regulations.
Moody’s warned that the unfolding second wave of the Covid-19 pandemic was threatening the fragile economic recovery across G-20 economies.
The ratings agency said financial conditions continue to recover in emerging markets, but remained challenging in Mexico, Argentina, Turkey and South Africa.
“Recent trade advances in emerging markets are susceptible to unsupportive external conditions due to a demand slump in advanced economies, as well as slower demand recovery in China,” Moody’s said.