Bad press does not harm rand

Tamlyn Stewart

Tamlyn Stewart

The rand seems to have shrugged off South Africa's bad political press and continues to trade much stronger than expected.

"I come in every day, look at the fundamentals and conclude the rand should be weaker. And almost every day the rand moves stronger," said Rand Merchant Bank's John Cairns yesterday.

"The pace of the rand's gains have, in fact, accelerated after it broke R7,50 to the dollar last week, with a 10 cent move on Friday alone, a day usually associated with profit taking," said Cairns.

He said the Sunday Times' allegation of corruption against President Thabo Mbeki means both South Africa's current president and his likely successor are under suspicion, at the same time as the platinum price has fallen.

"Fundamentals then suggest a weaker rand ... Overall then we continue to think the rand gains are perplexing and unsustainable," said Cairns.

"At the very least we need some consolidation at the R7,20 level, perhaps with some pullback to R7,30."

Chris Hart, chief economist at Investment Solutions, agreed that the rand's current levels were unlikely to hold.

"I have a feeling that what is behind it is something that is not going to be sustained. My suspicion is we are pretty close to a bounce area - maybe in October it will be back closer to the R8,00 level," he said.

As to what could be supporting the rand at its current levels, Hart said the exact cause was uncertain: "It could be some hedge fund trades unwinding, or some sort of corporate action ... there could be big players eyeing take-over targets and putting in a currency trade ahead of the actual announcement - but that is pure speculation."