South African Rand Scores New August Highs against Dollar and Sterling amid Robust Risk Appetite

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  • GBP/ZAR spot rate at time of writing: 22.08
  • Bank transfer rate (indicative guide): 21.31-21.46
  • FX specialist providers (indicative guide): 21.75-21.88
  • More information on FX specialist rates here

The Rand scored new August highs against the Dollar and Pound Tuesday as investors celebrated the survival of January's phase one U.S.-China deal while revelling in elevated hope that a coronavirus treatment could soon be available to help curtail the pandemic even in the absence of a vaccine.

The Rand rose against all major developed and emerging world counterparts Tuesday as stock markets climbed further and the Dollar remained under water, with USD/ZAR and GBP/ZAR falling to their lowest levels since late July.

"The rand is steady, holding onto its gains following its break below R17.00/$ during trade yesterday. We face yet another quiet data day ahead, with the focus remaining on the Federal Reserve for this week," says Bianca Botes, an executive director at Peregrine Treasury Solutions

Risk appetite was evidently robust after U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer said "Both sides see progress and are committed to taking the steps necessary to ensure the success of" January's phase one deal that largely ended the trade war between the world's two largest economies.

That came after the White House has secured a regulatory blessing for the use of blood plasma from recovered coronavirus patients as a treatment for those struck down by the disease, given that it can be used to pass on antibodies that can be helpful for fighting it. 

Above: USD/ZAR rate shown at daily intervals. 

"Markets seem to be more focused on the good news – in particular, that there appear to be multiple streams of progress towards treatment and the development of covid-19 vaccines, as well as pretty positive feedback on trade discussions between the US and China," says Siobhan Redford, a currency economist at Rand Merchant Bank. "Market optimism in the form of increased risk appetite is not only being seen in equity markets but currency markets too, as many EM currencies have strengthened this week. The monthly performance is more mixed, but the rand has been one of the star performers after gaining over 1.2% against the US dollar, euro, pound sterling and Chinese yuan."

The Pound-to-Rand rate was eyeing a return to the 22.0 handle on Tuesday while USD/ZAR was back below 17.0 and on route to 16.50, the bottom of an anticipted third-quarter range, as almost all currencies advanced on the Dollar in what is set to be a quiet week for economic data. 

"The 2020 support line at 16.6717 represents another potential downside target. Strong support below it comes in between the June and July lows as well as the 200 day moving average at 16.3990/16.3434. We will retain our once again bearish bias while the currency pair remains below the current August high at 17.7863. Only if it were to (unexpectedly) be exceeded on a daily chart closing basis, would a bottoming formation be made with the early and late April lows at 17.8433/18.0108 then being targeted," says Axel Rudolph, a senior technical analyst at Commerzbank

Above: GBP/ZAR rate shown at daily intervals. 

Global macroeconomic factors dominate the agenda this week with the highlight being eagerly awaited speeches from Federal Reserve Chairman Jerome Powell and a range of other central bank heads, who're expected to address poignant policy questions from Jackson Hole on Thursday and Friday. 

"This year the directional trend is towards strength for emerging markets in Q3.20, instead of weakness as has been normal. Q3.20 has been underlaid with US dollar weakness on a departure from safe haven assets as markets continue to price in recovery for the global economy, with traders fearful of missing out on this play," says Annabel Bishop, chief economist at Investec in a Monday note to clients. "The rand could move through R17.00/USD before the end of this month, and begin tracking towards R16.50/USD in the first week of September, but then run into some volatility thereafter."

Price action comes as President Cyril Ramaphosa and Finance Minister Tito Mboweni prepare to face questions from South Africa's parliament on Wednesday, with lawmakers set to grill the pair over an International Monetary Fund loan and alleged corruption relating to public procurement contracts for personal protective equipment. 

South Africa became the world's fifth largest coronavirus hotspot this month although new daily infection numbers have tailed off in recent weeks, indicating the country could have seen its peak, although the economy remains battered and bruised from months of 'lockdown' while the Rand had previously been hobbled by a loss of its yield appeal to investors following a series of interest rate cuts from the South African Reserve Bank (SARB).

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