Rand Pares Worst Quarterly Losing Streak in 12 Years on Exports
Comment of the Day

June 26 2013

Commentary by Eoin Treacy

Rand Pares Worst Quarterly Losing Streak in 12 Years on Exports

This article by Jaco Visser for Bloomberg may be of interest to subscribers. Here is a section
The rand strengthened, paring its longest quarterly losing streak in almost 12 years, as exporters converted earnings from abroad to the local currency.

“There was some inflows from local companies translating their foreign exchange earnings,” Edwin Smit, a derivatives trader at EDI (Pty) Ltd., said by phone from the capital Pretoria.

The rand gained as much as 0.8 percent to 10.0288 per dollar and was trading 0.4 percent stronger at 10.0676 as of 11:30 a.m. in Johannesburg. The currency has lost 8.3 percent over the past three months, heading for its fifth quarterly decline in the worst stretch of declines since the final three month of 2001. Yields on 10.5 percent government bonds due December 2026 fell for a second day, declining three basis points, or 0.03 percentage point, to 8.20 percent.

Eoin Treacy's view The South African stock market plays host to a significant number of affiliates of globally significant companies. For example BHP Billiton, Compagnie Financiere Richemont, SAB Miller, Vodafone and British American Tobacco all maintain full listings in the country. ABSA Group is also a wholly owned subsidiary of the UK's Barclays. The performance of these shares has helped support the stock market but the weakness of the Rand has been a more important factor in local currency terms over the last few months.

In local currency terms, the Johannesburg All Share Index has returned to test the region of the 200-day MA and the April lows where is has steadied. It will need to hold near this level if the medium-term upside is to continue to be given the benefit of the doubt. However, when the Index is redenominated to US Dollars we are presented with a much less consistent pattern. The Index has been confined to a volatile range since early 2011 and has returned to test the lower side.

While the devaluation of the Yen has made headlines because it represents the most convincing efforts to break Japan's deflationary spiral in a generation, the Rand has been the worst performing currency against the Dollar this year. This total return table from Bloomberg highlights the fact that the Rand, Yen, Australian Dollar and Norwegian Krone have been the worst performing currencies to date this year. All three of the commodity related currencies have short-term oversold conditions so there is potential for a relief rally. However, they will need to sustain moves back above their respective 200-day MAs to begin to repair the damage done to their medium-term uptrends.

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