MIRIAM ISA, Johanneburg | Thursday 5.45pm
THE battered rand recovered its poise on Thursday, bolstered by fresh demand for bonds as foreign investors regained their nerve and decided a recent collapse in the market is unwarranted.
The rand was trading at R6,39 to the dollar after hitting R6,50 on Wednesday. Rising hopes that Opec will up output and allow oil prices to fall helped the currency – which has lost around 4% against the dollar since February.
But analysts said scope for further recovery would be limited by the dollar’s strength and also by near-term gains in government bonds which, like the rand, are still seen as undervalued given South Africa’s improved economic outlook.
”The rand is clearly undervalued in fundamental terms – both technical analysis and fundamentals are arguing for a rebound,” JP Morgan economist Peter Worthington said. ”We have a near-term target of R6,40 to the dollar but at anything below that you will see bids for dollars…as long as the euro remains weak the rand/dollar level will stay high.”
Most analysts believe the rand, which hit an 18-month peak of R6,54 to the dollar last week, will firm to R6,30 by the end of the year. The main obstacle is the fact that the currency of Europe, South Africa’s main trading partner, is so weak.
Analysts believe the market had overeacted to a warning from Reserve Bank governor Tito Mboweni that higher oil prices and the impact of recent floods on agriculture could push domestic inflation higher in the short term. — Reuters