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Rand rises on easing lockdown restrictions globally, markets rally

The South African currency continues to be weaker against the dollar than most emerging market currencies such as that of Turkey, Argentina or Brazil.

South African rand.  Picture: Christa Eybers/EWN

JOHANNESBURG - The rand strengthened on Monday as demand for emerging-market currencies was boosted by further easing of lockdown regulations globally, while a rally in metals prices also helped commodity-linked currencies.

The stock market firmed up following cues from Asia, where shares rose on hopes of an increase in demand due to eased restrictions and a rise in crude oil prices.

At 1350 GMT, the rand was up 1.13% at R18.3800 per dollar, compared with a close of R18.5900 on Friday in New York. Countries around the world have continued to lift coronavirus restrictions, with previous hotspots such as New York, Italy and Spain slowly rolling back lockdown rules and allowing economic activity to restart.

South Africa has also let some industries come back to work with a 50% workforce. However, many have claimed that the slow easing of restrictions in the country is weighing on the rand.

“The very slow reopening process, which seems to be occurring on only one level being removed per month, is also quelling business confidence,” Annabel Bishop, chief economist at Investec, said in a research note on Monday.

The South African currency continues to be weaker against the dollar than most emerging market currencies such as that of Turkey, Argentina or Brazil. It is also weaker than most commodity-driven currencies of Australia, Norway or Russia, Bishop said.

But there was optimism at the start of the week that new coronavirus infections have declined, improving risk sentiment, which has been shaken in the last few sessions by a flare-up in US-China tensions.

“The Sino-US tensions and poor economic data are being offset by optimism over vaccine trials and declining global coronavirus cases as well as the restarting of global economies,” said Andre Botha, senior dealer at TreasuryONE.

The Johannesburg Stock Exchange (JSE) was upbeat on higher gold, platinum and crude prices with the benchmark FTSE/JSE all share index up 3.53% to end the day at 51,382 points, and the FTSE/JSE top 40 companies’ index closed up 3.75% to 47,674 points.

The rally was driven by JSE’s mining index, an index formed out of top 10 mining companies in South Africa, which was up 6.8%.

Bonds also shared the optimism, with the yield on the government issue due in 2030 down a huge 49.5 basis points to 9.100%. The yield also reflected expectations that the South African Reserve Bank was likely to cut interest rates later this week by 50 basis points.

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