THE rand is expected to extend its rally of recent weeks as it climbed to yet another record on Friday, after the SA Reserve Bank said late last week it would not intervene to weaken the currency and gold surged to a new record.

Last week the rand gained to a more than three-month high after the Bank said measures to curb capital inflows to weaken the currency “would not be appropriate” for SA. The rand advanced as much as 0,7% to R6,63/$, its strongest level since January 4, heading for its third consecutive weekly gain against the dollar.

“The rand is still strong on firm commodity prices, the resilient euro, encouraging South African manufacturing data and further indications that the Reserve Bank will refrain from capital control measures to stem rand strength,” Standard Bank analyst Michael Keenan said in a research note.

Reserve Bank deputy governor Daniel Mminele said late last week that SA had “carefully studied” measures used by some emerging market countries to curb capital inflows, including limits and taxes on bond investments by foreigners and reserve requirements on foreign-exchange swaps and forward trades. It was “rather doubtful” such measures would stem rand strength and they “would not be appropriate for SA at this stage”, he said.

“This seems sensible,” John Cairns and Nema Ramkhelawan, currency strategists at Rand Merchant Bankin Johannesburg, said in a research note.

“As much as the country may want or need a weaker rand, the available evidence suggests that capital inflows taxes or restrictions would be completely ineffective,” they said.

The rand could strengthen to R6,60 after advancing “decisively” through R6,68, where the dollar had strong support, they said.

The Brazilian government last week extended a tax on foreign- based loans to stem the real’s gains after it reached a two-and-a-half- year high this week, making the country’s exports less competitive and imports cheaper. That has not halted a rally in the real that on Thursday last week took it beyond 1,6 real to the dollar for the first time since August 2008.

Chris Hart, chief economist at Investment Solutions, said the monetary policies of the world’s bigger economies were also playing a role in boosting emerging economies’ currencies.

“The US and Japan, with their low interest rates and high liquidity, are enabling the environment for money to flow back into emerging markets. This is further supported by receding risks in the volatility of situations in Japan and the Middle East,” he said.

Mr Hart expects the currency to flirt with R6,30/$ this year.

Also fuelling the rand’s advance is the rising gold price. It rose to a record high for a fourth straight day on Friday, as a weaker dollar and inflation worries lifted bullion above $1470 an ounce.

The metal has risen more than 10% since late January, when political unrest began to flare in the Middle East and North Africa.

“With the expected future inflation being higher in this low interest rate environment, investors are more inclined to have contributions to commodities as an inflation hedge,” said Hakan Kaya, commodities portfolio manager at Neuberger Berman.

“It’s an across-the-board surge in all the commodities. Gold, oil, they’re all up. People are dumping the dollar and buying commodities,” MF Global senior commodity analyst Edward Meir said.

Oil was another commodity that surged last week, with Brent crude jumping to a 32-month high above $125 a barrel on Friday as commodities climbed in unison on a weaker dollar after attacks on Libyan oil fields made long-term supply cuts more likely.

With fighting continuing in Libya, oil prices are expected to remain firm this week.

“The uptrend is still very much intact,” Michael Guido, director of hedge fund energy sales at Macquarie Bank in New York, said.

Bloomberg with Reuters.

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