Rand stages robust recovery as hope springs of global economic recuperation

Since staging a recovery against the odds in mid-May, the rand continued to strengthen, breaking below R17.00 to the US dollar early on Wednesday.

Behind the latest rally sits positive risk sentiment driven by rising hopes of a global economic recovery, TreasuryONE chief currency dealer Wichard Cilliers said in his daily currency market update.

Further central bank stimulus has also seen equity markets climb, the dollar weaken, risk sensitive currencies firm and the oil price rise, Cilliers said.

The local unit firmed more than 1% to R16.97 before trading at R17.02 against the greenback by 12:48, still 0.82% firmer at its previous close.

Bloomberg reports that analysts in a survey see the rand reaching R18.95/$  in the second quarter – implying a decline of around 9% from Monday’s level of around 17.36 to the dollar.

The probability of the rand weakening that much by the end of June is now less than 2%, according to Bloomberg’s forecast model based on prices of options to buy and sell the currency.

Cilliers said in his report that the rand finally broke through the 38.2% *Fibonacci retracement level on Tuesday to touch a 17.0810 best level before closing at 17.1548. “This morning we are trading firmer at 17.0925 with a test on the 17.000 level possible today. The 50.0% Fibonacci retracement target is around 16.6350.”

He also noted that the DXY (an index of the value of the United States dollar relative to a basket of foreign currencies) is trading lower at 97.474 as the dollar has weakened to 1.1208 against the euro and 1.2590 against the pound.

Bloomberg reports the rand strengthened 5.6% in May, its first monthly advance this year and the best since January 2019.

On the way, it breached two key resistance levels to further gains: the 50-day moving average at around 18.20 and the 23.6% Fibonacci retracement from April’s record low, at 18.04. Next up is the 38.2 retracement at 17.24, and a sustained breach could see the currency heading toward 16.50 per dollar, it quoted Credit Suisse SA and Standard Bank Group as saying.

* Fibonacci retracement is a method of technical analysis for determining support and resistance levels. They are named after their use of the Fibonacci sequence.

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