While South Africans battle through icy weather in places and a spate of Winter load shedding, the Rand has provided some positive and perhaps unexpected news. In May 2021, the Rand was the best performing Emerging Market (EM) currency, gaining 5.8% against the USD.
Let’s take a closer look, and find out why…
Broadly speaking, several factors have supported EM currencies:
- Renewed interest in the carry trade. Interest rates in SA are higher than interest rates in the US and Europe, thus the carry trade contributes to recent Rand strength. * The carry trade is where the investor buys a high-interest currency against a low-interest currency.
- Global trade reached another record high in recent months.
- Shipping activity is flourishing.
- Supply chains are being filled, and US monetary and fiscal stimulus remain plentiful.
These factors, coupled with the upside risk to inflation and hence interest rates, have contributed to a stronger than expected Rand.
Looking ahead, the current outperformance of the Rand appears likely to persist over the short to medium term, although most of the factors supporting the Rand appear to be ‘in the price’.
Source: Analytics Consulting