JOHANNESBURG (Reuters) -The South African rand strengthened below 19 to the U.S. dollar for the first time in three weeks on Wednesday, as a weakening greenback and an easing of rolling power cuts boosted the currency.
The rand firmed more than 1% at 18.975 to $1, its strongest level since May 16, before retreating to 19.1200 at 1748 GMT.
“The short-term strength comes from severely oversold conditions supported by some softening of the U.S. dollar and a slight uplift in key export commodity prices,” said Shaun Murison, senior market analyst at IG.
DailyFX analyst Warren Venketas told Reuters that lower stages of power cuts are playing an important role in bringing the country back on track in terms of business activity and investor confidence.
The rand lost 7% in May amid record deep power cuts and U.S. allegations that South Africa had supplied arms to Russia last year, pushing the currency as low as 19.9075 against the greenback last week and leading to fears it would breach 20.
“The fact that the rand has pulled back more against the U.S. dollar than other EM’s could be down to the fact that the rand was disproportionally undervalued against its (emerging market) peers and a bit of rebalancing was warranted,” said Andre Botha, senior dealer at TreasuryONE.
South Africa managed 0.4% growth in gross domestic product for the first quarter and dodged a recession, data showed on Tuesday.
Investor outlook mostly remains bleak as the rolling blackouts show no signs of fully abating. A business confidence survey published on Wednesday dropped to its lowest level in three years.
On the stock market, the Top-40 index rose around 0.3%, while the broader all-share index closed almost 0.4% higher.
South Africa’s local benchmark 2030 government bond also strengthened, with the yield down 3.5 basis points at 10.930%.
(Reporting by Tannur Anders, Rachel Savage and Anait Miridzhanian; Editing by Sherry Jacob-Phillips, Shilpi Majumdar and Leslie Adler)
