THE rand traded on the front foot as the dollar in particular softened in the wake of dovish comments made by the Fed chair, according to NKC Research.
As the primary focus in currency markets on Friday was on potential tapering cues dropped by Fed chair Jerome Powell at the virtual Jackson Hole Symposium, the rand garnered strength from a general risk-on mood as the speech carried a dovish tone.
The dollar retreated as the speech was considered to carry a dovish tone: while tapering has been indicated to commence by the end of 2021, cues surrounding interest rate lift-off disappointed the hawks.
On a more strategic note, the NKC takes note of three issues which have weighed on EM assets in recent months: the spread of the Delta variant globally, a strengthening greenback, and a regulatory clampdown in China.
The NKC does not think these will spell the end of the bull market and we continue to see upside for EM assets.
While renewed Covid-19 outbreaks do pose near-term risks for EMs where vaccination programmes are lagging and governments are taking a zero-tolerance approach, they are unlikely to derail the global EM recovery. In fact, we expect an improvement in activity over H2.
On the other hand, recent greenback strength can be seen as temporary; the dollar has been benefiting from its first-mover advantage in terms of policy expectations, but the follow-through is likely to be dollar bearish, particularly with global growth still above trend.
At the close of local trade, the rand quoted 1.0 percent stronger at R14.75/$, after trading in range of R14.75/$ to R14.94/$. The rand traded firmer overnight. The expected range of the rand against the dollar today is R14.60/$ to R14.90/$.
BUSINESS REPORT ONLINE