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The rand hit a more than eight-month high against the dollar on Monday (November 9), as markets applauded Joe Biden’s election as president of the United States in hopes that a calmer White House could boost the economy. world trade and that monetary policy would remain easy.
The Democratic candidate won the race to become the next president of the United States, defeating Donald Trump after a scathing vote count after Tuesday’s election. Biden won more than 73 million votes, the most for a US presidential candidate.
Reuters reported that the rand was trading at its strongest since March 5, which was before the Covid-19 pandemic pushed the local economy into a deeper recession.
“Although the rand has benefited significantly over the course of the most recent sessions, given the magnitude of recent gains, we are likely to find both profit-taking on short US dollar positions and buyers of fresh dollars at current levels.” Nedbank said. in a research note.
Although the rand technical indicators were suggesting an oversold scenario, “there are indications that it could extend its gains further towards the R15 / USD level,” analysts at Nedbank noted.
According to Bianca Botes, CEO of Peregrine Treasury Solutions, Joe Biden’s victory saw risk assets gain momentum, with markets betting on greater stability, while a divided Congress will still guarantee low interest rates for longer and a possible fiscal stimulus.
He added that local markets could be affected by the European Central Bank (ECB), which is expected to make a statement on Monday.
“We will be keeping an eye on Christine Lagarde of the ECB today as she makes her statement, while the lockdown situations in Europe and the UK remain on the radar,” he said.
Biden’s positivity
President-elect Joe Biden will give a boost to global stock markets and the economy of the United States and the world, said Nigel Green, CEO and founder of deVere Group.
“Although Biden’s victory was quite discounted by the markets, his victory will remove the uncertainty, which they loathe, and as a result, he will recover even more,” he said.
“Even potential Trump legal challenges will be dismissed by investors who will instead focus on the renewed certainty and stability that a Biden White House will bring, including in key areas such as trade tensions with China; keep the United States in the World Health Organization; re-signing the Paris climate agreement; and abide by other international agreements and long-standing international allies. “
However, Green said Biden will have to work with the Republican-led Senate to secure a fiscal stimulus to boost the economy. This means he might struggle to get the $ 3 trillion Democrats want, but there is likely a package, he said.
“This will encourage markets and make investors think of a broader-based economic recovery, rather than a narrower, high-tech one. As the world’s largest economy, long-term sustainable growth in the United States will have a positive domino effect for the global economy. “
Additionally, Biden’s victory without the full support of the Senate means less regulatory risk and higher corporate and personal taxes, which will give more oxygen to markets and the economy, he said.
The Stellenbosch University Bureau of Economic Research (BER) said that with a Biden victory, South Africa would benefit.
Two important implications would be the moderation of the dollar, as a result of the aforementioned stimulus package, as well as the boost for China, which is an important trading partner for South Africa.
Regarding the stimulus promoted by Biden, the BER said that “all other things being equal, this would support the US and global economic recovery in 2021, with positive effects in South Africa.”
The rand was trading at the following levels against the major currencies:
- Dollar / Rand: R15.56 (-0.26%)
- Pound / Rand: R20.53 (+ 0.10%)
- Euro / Rand: R18.50 (-0.16%)
Read: After more than six years of warnings, South Africa has reached a fiscal cliff
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