Currency strategist and director at TreasuryONE, Andre Cilliers dissects exactly what is happening in the foreign exchange markets with specific focus on the ever volatile rand. The rand has benefitted from an extended commodity bull run which has seem to have run its race with commodity prices having moved steadily lower over the prior weeks. This saw a sharp pullback in the rand against all the major currencies, however, the rand has still managed to outperform everyone’s wildest expectations during the Covid era. Andre says the rand is in a good place and assures one that there is not too much to be concerned about. – Justin Rowe-Roberts
Andre Cilliers on how the commodity bull run effects the value of the rand:
South Africa is a commodity rich country and we are one of the largest producers of commodities in the world. When commodities do well, the export levels increase and the flow of currency increases from exports and that simply means we get more currency impacting positively on the trade balance, impacting positively on the currency.
On whether there is a direct correlation between high commodity prices and a strong rand:
Yes, absolutely. It’s a direct correlation and as I said, it’s because we are exporting a lot and there are more dollars coming in. Those little words called supply and demand, more supply of dollars, more sellers, less buyers and a positive influence on the currency (rand).
Rand/dollar aside, how has the rand performed against the other major currencies:
For a long period the rand has done very well against the euro and very well against the pound. We saw the rand at the R19 levels against the pound, we saw the euro at the R16.50 levels. In the last few weeks we have seen that retreating somewhat against some of those major currencies and that was simply because those currencies actually depreciated quite a bit against the dollar but the rand depreciated more, in other words the percentage of depreciation of the rand against the dollar was more than what the other currencies depreciated and hence we have lost some value against some of those currencies. But we are still trading at relatively strong levels and I don’t think there’s nothing to be concerned about.