It was a quiet start to the week, but the Rand was nevertheless able to continue strengthening against the US Dollar as did many other Emerging Market (EM) currencies.
p. Though liquidity driving these moves has been less than average, warning of a potential unwind, it can still be said that many have overplayed the significance of the Malaysian airline disaster and talk around higher US interest rates in the short term. Gains made by many of these EM currencies have come when the Dollar index is trading up around one-month highs. While stronger US data is starting to gradually push US rate expectations up, there has not been a steady or large enough rise in these rate expectations to generate a more rapid unwind of risk positions.
p. For the Rand, there continues to be fragility risk and underperformance on the horizon beyond the short-term relief rallies being experienced. The Rand is sitting in a middle ground where the SARB has raised rates but only marginally (0.25%) and not by enough to create a meaningful interest rate buffer, while simultaneously growth and fiscal prospects continue to deteriorate over time. These weak fundamentals give colour to a currency that has failed to see any form of strong rebounds in context of its long-term weakening path.