The rand has staged a remarkable recovery, gaining almost 200c against the dollar. It has bounced back from R19/$ in April to R16,61 as of Tuesday.
Here are five drivers pushing the rand from Covid-19 doldrums:
- Quantitative easing – this occurs where central banks introduce new money into the money supply chain to support an economy. There has been a large volume of QE pumped into the system, which has seen financial markets increasingly look to invest into higher yielding assets, and with emerging market portfolio assets gaining from this investment flow, so emerging market currencies continue to strengthen substantially, she said.
- US dollar weakness – the greenback is on the back foot currently and emerging market currencies like the rand are benefiting from the weakness.
- Attractive yields – the rand is still attractive to yield-seekers. Many developed markets in the world have interest rates at zero or close to zero, investors worldwide are seeking yield. Despite our recent interest rate cuts, South Africa still offers some yield, which has helped the ZAR as the risk sentiment returned.
- Positive moves on all the major equity indices – markets priced in a post-Covid-19 recovery have spurred on emerging market currencies, including the rand. As a commodity currency, the rand also benefited from strong metals prices. Commodity currencies are up by around 4% month-on-month, which show greater gains over June to date than in May.
- Improving global financial market sentiment – the market is positive on prospects for global economic recovery.