The rand firmed to a one-week high on Thursday afternoon despite the South African Reserve Bank’s decision to keep its key lending rate unchanged at 5.5%.
Some analysts had expected the rand to weaken in response to interest rates remaining the same as investors would have no incentive to increase their rand holdings because their returns would remain constant.
In contrast, higher interest rates would have made the rand a more attractive investment asset, yielding higher returns.
ETM market analyst Gareth Brickman pinned the rand’s appreciation to an intraday best level of R10.30/$ – its firmest since May 15 – on the continuation of Wednesday’s trend which saw emerging-market assets come into investor favour.
“Positive risk sentiment towards emerging-market currencies is overriding concerns of central bank complacency,” he said, citing that the Turkish lira registered strong gains against the dollar despite its central bank cutting interest rates on Thursday. The lira was in fact outperforming the rand, according to Mr Brickman with the Russian rouble also firmer.
“It’s seems as though markets are allowing central banks to adopt looser monetary policy without being punished for it,” he said, but noted that emerging market currencies were strengthening against a backdrop of expectation of US interest rates remaining lower for longer and relatively low volatility in the foreign exchange space.
At 4.10pm the rand was at R10.3431 to the dollar from Wednesday’s close of R10.3700.
The rand was at R14.1200 to the euro from its previous close of R14.1980 and at R17.4377 to the pound from Wednesday’s close of R17.5263.
The euro was at $1.3657 from its previous close of $1.3686.
“Even though the Reserve Bank kept the repo rate on hold at this monetary policy committee meeting, citing an improvement in the rand which was posing less of a threat to its inflation outlook, the market is still pricing for rate hikes to be forthcoming in due course,” Mr Brickman said.