South African rand on a record run

South Africa’s rand rose to its strongest level in more than three years, following a broad markets rally after President Donald Trump ruled out using force to take Greenland. 

The currency strengthened 1% to 16.26 per dollar, outperforming most emerging-market peers. The yield on South Africa’s benchmark government bond fell 11 basis points to 8.32%. 

“Risk sentiment has improved,” said Lee Hardman, a strategist at MUFG.

Record-high gold prices, driven by heightened geopolitical risks, also supported the rand and lifted South African assets. Meanwhile, economic data showed that South African inflation remains under control, which should give the central bank room to cut interest rates. 

The rand is on a weekly winning run not seen in more than two decades as elevated precious-metal prices and an improving economic backdrop drive gains.

The currency has had its eighth straight weekly advance against the dollar, which would be the longest streak since December 2002, according to data compiled by Bloomberg. It’s strengthened 6.1% over the period.

While record gold and silver prices have supported rand gains, economic reforms and a cautious central bank have also helped.

Policy makers adopted a lower inflation target last year, boosting confidence that the country will maintain its interest-rate advantage over the US.

“Possibly, the main cyclical factor is the commodity tailwind,”, said Burak Baskurt, chief emerging markets strategist at BNP Paribas. “But structural factors mostly explain the sharp appreciation.”

“We see further gains for the rand and expect rates and bonds to rally further due to low inflation,” Societe Generale strategists including Phoenix Kalen and Marek Drimal wrote in a note.

The gains extended beyond the currency. South Africa’s benchmark equity index has risen over 2% this week, hitting a record high as mining shares rallied.