South Africa's rand extends gains in risk rally

Credit: REUTERS/© Mike Hutchings / Reuters

Updates to reflect afternoon trade

JOHANNESBURG, Aug 25 (Reuters) - The South African rand extended gains against the dollar on Tuesday, as riskier currencies forged ahead after positive signals from trade talks between the United States and China.

At 1610 GMT, the rand ZAR=D3 traded at 16.8700 per dollar, around 0.6% firmer and adding to gains of roughly 1% a day earlier.

A telephone call between senior U.S. and Chinese officials helped dispel concerns their trade deal could be on shaky ground because of worsening diplomatic ties.

China is South Africa's top trading partner, so the rand is particularly sensitive to news about the Chinese economy.

Some investors use the rand as a proxy for emerging market risk, which means it tends to gain strongly when such assets are in favour, as has been the case recently with rock-bottom interest rates in developed markets.

"Markets seem to be more focused on the good news ... there appear to be multiple streams of progress towards treatment and the development of COVID-19 vaccines, as well as pretty positive feedback on trade discussions between the U.S. and China," analysts at Rand Merchant Bank wrote in a research note.

Local traders will look to the consumer price index on Wednesday, the producer price index on Thursday and budget data on Friday for clues about the health of the domestic economy.

But in the absence of much domestic data recently, the rand has mainly moved on shifts in global sentiment.

Government bonds were flat on Tuesday, with the yield on the 2030 bond ZAR2030= staying at 9.29%.

The Johannesburg Stock Exchange's Top-40 index .JTOPI closed 0.94% lower at 51,768 points and the All-share index .JALSH fell 0.9% to 56,114 points, with big declines for platinum firms and Telkom TKGJ.J.

Some stocks managed to buck the trend, however.

Retailer Lewis Group LEWJ.J rose more than 12% as sales rebounded following the country's coronavirus lockdown, while pharmacist Dis-Chem DCPJ.J closed more than 5% higher after reporting revenue growth.

(Reporting by Alexander Winning and Emma Rumney; Editing by Alex Richardson)

((alexander.winning@tr.com; +27 11 595 2801))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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