South Africa’s rand hit a more than two-year high against the dollar in thin trade Monday a public and markets holiday in the continent’s biggest economy.
At one point, the rand touched 7.18, its strongest level since January 2008, before retreating marginally to 7.225.
Rand strength has been driven by foreign capital flows into South Africa’s stock market and bonds.
The unit, which South African policymakers say is overvalued at its current levels, has found resistance around the 7.2 mark on six occasions in the last 12 months.
Despite that, it is comfortably stronger than its 20-, 50- and 200-day exponential moving averages, suggesting it is locked in a short-, medium- and long-term strengthening trend.
Exacerbating the move by the rand, a deeply traded emerging markets unit, was a dollar on the defensive against major currencies after disappointing jobs data on Friday highlighted the weakening US economic outlook.
The latest rand high is likely to intensify debate in the ruling African National Congress (ANC) about what to do with the currency, whose strength is hitting exports and jeopardising the manufacturing sector’s recovery from last year’s recession.
The ANC is considering a tax on capital inflows to try to curb the strength of the rand, although nothing will be done before a long consultation process, party treasurer-general Matthews Phosa said last week.
The ANC’s powerful labour union allies have long called for the Reserve Bank to weaken the rand to about 10 against the dollar, although bank officials are terrified by the inflation that would inevitably result.