South Africa’s rand breaks below R16 to the US dollar

South Africa’s rand strengthened below R16 per dollar, erasing its Iran war losses as the greenback extended declines sparked by the US Treasury’s plan to buy back longer-end bonds.

The rand, often seen as a proxy for developing-nation assets, gained as much as 0.8% to 15.9924 per dollar.

It last closed below 16 in February, before the outbreak of the conflict in the Middle East.

Treasury Secretary Scott Bessent said Thursday he’s prepared to expand efforts to buy back costlier debt and promised a new fiscal initiative.

The plan is weighing on the dollar and boosting the appeal of higher-yielding, emerging-market currencies.

An improving fiscal backdrop locally and rising precious metals prices are also supporting the rand.

“With the war premium now largely faded, we think the encouraging domestic story will reassert itself as the dominant driver,” said Matthew Ryan, head of emerging-market strategy at Ebury Partners.

“We expect the rand to grind stronger from here, underpinned by a hawkish SARB, ongoing energy reforms and solid underlying fundamentals.”

South Africa’s currency slumped to a four-month low in March as the Middle East conflict drove oil prices higher.

It clawed back some losses before losing ground again in July after the South African Reserve Bank held back on raising interest rates in a surprise decision. 

Low volatility is also boosting the rand’s appeal in the dollar-funded carry trade, Ryan said.

Three-month implied volatility for the rand versus the dollar fell to the lowest level since January this week.

The South African currency has returned 3.5% in the carry trade this month, according to data compiled by Bloomberg.

The rand traded at 15.99 per dollar by 2:49 p.m. in Johannesburg.