The rand gained for a fifth straight session on Wednesday on the back of dollar weakness and as traders still digest better-than-expected local GDP numbers.
By 09:00 the rand was trading below the psychological R14 level at R13.98 against the greenback. The local unit was also firmer against the pound and euro, trading at R18.75/£ and R15.72/€ respectively.
“Very good second-quarter local GDP numbers and poor US data were the main movers in the market,” said Adam Phillips of Umkhulu Consulting.
Statistics South Africa announced on Tuesday that GDP expanded by 3.3% quarter-on-quarter. This compares with the 2.8% expected, and following the 1.2% contraction in the previous quarter. The year-on-year growth was 0.6%.
This was good news all round as a technical recession was avoided.
General exports and mining were up, but imports were down. “I would be really surprised if the third quarter delivered such a good number,” said Phillips.
He said the rand was already feeling top heavy, with dollar longs and no news out on the local political scene to prop it up. “Once it went through 14.30 and the GDP news came out, there was some good selling of dollars, as importers stepped aside.”
Dollar negative data out of the US includes that the ISM non manufacturing index fell to 51.4 in August, while the labour index for the same month also contracted.
“This has led to some big moves in the dollar in the last 24 hours, with the majors and emerging market currencies benefiting,” said Phillips.
“No news looks to be good news on the political front at least,” said Wichard Cilliers, head of dealing & director at TreasuryOne.
He said the local unit has been a major benefactor in the dollar’s decline, with several local factors adding impetus to the move.
“Yesterday we saw an initial move lower as the US came back from a long weekend and decided to offload dollars after a weak jobs number on Friday, stop-losses were evidently hit for those holding onto dollars speculating on further political turmoil which has thankfully died down.
“Then we received an impressive GDP figure indicating a Q/Q growth of 3.3% which spurred the rand on further to 14.15, but the mighty rand was not done.
“The US released their ISM non-manufacturing figure for August which dropped to a six-year low of 51.4, helping risk assets globally and the rand down to 13.95 where we open today.”
He said the string of poor US data dents the already weak prospect of a September hike, “but August data for the US is traditionally poor, so we would need to see a continuation of this in September to believe a rate hike in December is a distant truth”.
NKC African Economics said the rand has now recovered roughly half the ground it lost due to the uptick in political risk since late August 2016.
“At the close of local trade, the SA currency was quoted 2.5% stronger at R14.05/$, after trading in range of R14.02/$ – R14.40/$. It strengthened further overnight, breaking through the psychological R14/$ level.”