The rand surprised the market with a strong push to below R13/$ on Tuesday afternoon as the unit capitalised on a weaker dollar.
Earlier on Tuesday the rand continued its previous session’s slide to reach R13.12 to the greenback as the local unit faced more upside pressure from the North Korean missile launch.
By 16:47 the rand was trading at R12.99/$, 0.32% firmer than its previous close. It strengthened to R12.93/$ earlier in the session.
RMB currency analyst John Cairns said in his daily note to clients that the latest missile launch was North Korea’s most provocative ballistic test yet, as the missile flew over the northern Japanese island of Hokkaido, generating warnings for citizens to take cover.
“Given that a war between Japan/Korea/US and North Korea would be devastating — and generate R2.00+ big figure rise in USD/ZAR — one can understand the market’s nervousness.
“However, the problem with the catastrophe trade is that there is only a very small chance of a massive market event and a near certain chance that nothing will happen. Betting on the catastrophe therefore is almost always going to generate a loss, which is to say that, as with all the previous missile launches, expect risk aversion to die away rapidly, and for risk assets to recoup their losses,” Cairns said.
Commenting on the latest move, TreasuryOne told Fin24 there is no particular reason for the rand’s sudden strength.
“It surprised the market. The rand is capitalising on a weaker dollar and the North Korea missile scare has fallen into the background.”
TreasuryOne dealer Andre Botha earlier said North Korea’s missile launch early on Tuesday will only serve up more geopolitical tension, and more risk-off behaviour can filter into the market which can stop the rand from breaking through the R13-level against the US dollar.