The rand advanced to its best level in more than five months on Tuesday, testing 9,85/dollar for the first time since early June, with traders
predicting further gains in the weeks ahead.
At 1116 GMT the rand was trading back at 9,91 against
the greenback — little moved from its close
of 9,9075 in Johannesburg on Monday — after briefly
changing hands at 9,8550 earlier in the session.
Traders say the offshore-driven rally seen
in the past month was fuelled in part by the weaker dollar and attractive yield differentials offered by South African interest rates. But some are also citing the fact that major players had to cover unhedged options which they wrote when the rand was
descending rapidly to a record low of 13,85/dollar late in 2001.
”We’ve heard this option play is massive and there’s still a positive carry factor,” a trader at an international bank said. ”If it breaks 9,80 and then 9,75 it could go to 9,52 by the end of next week. Some people are calling 8,70,” he said.
The rand hit its best level for the year in late May, which was 9,67/dollar. The volatile unit has confounded sceptics so far this year, appreciating by more than 21% against the dollar and 13,4% against a trade-weighted basket of currencies. Many local players — still unsettled by the rand’s historic
37% plunge against the dollar last year — are puzzled by the trend, which offshore analysts say is
fuelled in part by a shift in sentiment in favour of South Africa.
Recent weakness in the US unit, which hit parity against the euro again on Tuesday, is also a factor. It hit three-month lows against European currencies and a one-month trough versus the yen on Tuesday as
speculation mounted that the Federal Reserve would cut
rates at the end of its policy meeting on Wednesday.
Bonds wavered slightly after clocking up impressive gains in the past week on the rand’s recovery and on
mounting hopes that the central bank will not raise interest rates for the fifth time this year at its next policy meeting on November 27-28. Yields on the longer-dated R153 bonds, due 2010, were at 11,62% from 11,52% on Monday. The shorter-dated R150 due 2005 was at 11,92% compared to 11,85% on Monday. – Reuters