Local elections, international uncertainty: How will the rand respond?

As we dust off the Easter Holiday cobwebs, we enter the business end of the local election. This brings about a lot of local noise which could increase volatility in the rand. The market will look at any headline news which could lend short-term momentum to the rand after a period of range-bound trading. 

The rand has traded in a very narrow band in the past couple of weeks as a result of a lot of two-way directional pull in the market.

First off, we had the whole global growth fear which has been hogging headlines and has affected sentiment in a negative way. On the other side of the coin has been the news that the US-China talks have been going better than expected and that investors are looking at yield in riskier environments like the rand. 

One can easily follow that these forces cancel each other out which explains the lacklustre performance in the past few weeks.

Earlier this week we saw the US dollar on the front foot as the White House has scrapped waivers on Iranian oil to purchase the commodity. Iran has vowed to close the Strait of Hormuz, which is a major waterway for global oil shipments. We have seen the oil price rally on the back of this news.

Furthermore, the uncertainty that this latest act of the White House has brought about in the market looks to have strengthened the dollar as investors are running for a safe haven and Emerging Markets’ (EM) currencies are bearing the brunt of the latest bout of uncertainty.

The US dollar has broken below the 1.12 level against the euro after trading above 1.13 level at the back end of last week. 

The longer the Iran-US situation continues, the more uncertainty will be evident in the market and volatility in the rand and other EM's could become the norm again.

The rand will be in focus as it will have to contend with both international factors and the local elections in the coming weeks. The most significant data released this week will be the US 1^st Quarter GDP number that will be out on Friday (26 April 2019).

With the new bolt of uncertainty in the market, we expect the rand to trade on the back foot this week, and the rand might need a weaker than expected GDP number from the US for sentiment to change. 

To catch up on today’s market commentary, have a look at the TreasuryONE blog which is updated daily.