The rand on Thursday broke below the R14.70/$ mark, and an analyst thinks there is scope for it to strengthen even further to R14.50/$.

Along with other emerging market currencies, the rand this week rallied on a surge in risk appetite and a weakening dollar. Reports that a Brexit deal may be struck as well as news that a US stimulus deal may be settled before Christmas, in conjunction with the US Federal Reserve Bank's announcement that interest rates will remain zero and it would continue its bond buying programme, were among the factors that helped to swing market sentiment toward emerging market currencies.

The rand which started Thursday at R14.82/$ had strengthened by nearly a percent to R14.67/$ just after midday. Senior dealer at TreasuryONE, Andre Botha, expects there to be scope for the rand to strengthen to R14.50/$ after breaking below the R14.70/$ mark.

Just last week the rand broke below the R15/$ mark, a first in ten months. One of the contributing factors was the better than expected GDP figures for the third quarter as well as developments further ashore - such as the distribution of Covid-19 vaccines in the UK and the approval of a vaccine in the US, the Bureau for Economic Research (BER) highlighted in a weekly report.

Around this time last year, the local unit was trading even stronger, near the R14/$ mark. It is still doing better than the R15.38/$ it hit after former president Jacob Zuma sacked finance minister Nhlanhla Nene back in December 2015 and replaced him with ANC backbencher Des van Rooyen.

The weakest it's been in this 52-week range is R19.35/$. The strongest it has been is R13.93/$.

Having started the year around R14/$, it weakened in March along with other risky assets due to the impact of Covid-19, said George Herman, director and chief investment officer at Citadel.

In response to the pandemic, global central banks reduced interest rates rapidly and added further stimulus to the global financial system via quantitative easing, said Herman. In South Africa, the Reserve Bank lowered rates by a whopping 300 basis points and bought government bonds - however, the central bank said this was to correct market dysfunction and not quantitative easing like some of its global counterparts.

"Governments also followed with fiscal support and soon the globe was awash with liquidity and risk-assets, including emerging markets and their currencies.

"With vaccines now rolled out globally, the world is returning to pre-Covid levels and hence no surprise that the rand is returning into the 14s," said Herman.

There has also been a "mad rush" to risk assets and emerging markets since November, following Joe Biden's election victory in the US - as it is viewed as positive for US-China relations, global trade and commodities, Herman explained. The current "risk-on" theme and money flows to emerging markets could see the rand reach levels it started at in 2020, he added.

While the "frenzy" could continue into the first part of 2021, Herman said that South Africa is currently attracting "speculative" capital and not long-term investments.

"Once the deluge of speculative cash dries up, SA will face severe funding pressures, placing the rand under more pressure than our peers.

"Once this happens, the rand will give up its gains from November onwards very quickly," he said.

In a note, Investec chief economist Annabel Bishop explained that market sentiment is geared toward a global economic recovery into 2021. But additional lockdown restrictions to curb the spread of Covid-19 infections could thwart the recovery, especially if the US tightens its responses under the Biden administration.

"While markets have taken a strong risk-on stance, the global recovery is still likely to be uneven, and not reach pre-Covid levels quickly, with some downside to market sentiment," said Bishop.

In recent weeks, the news of vaccines has resulted in more market optimism which played out differently for certain commodities. The gold price retreated last week as safe haven assets lost their attractiveness. But gold managed to recover ground and reached a one-week high on Thursday morning of $1 868, this on the back of US stimulus hopes, said Botha. The gold price was trading up 0.80% to $1 880 by late afternoon.

Gold reached a historic high of $2 075/0z in August. "[It] could continue to wane back towards $1 800/oz, even dropping below this level next year," said Bishop.

"With the global economy still likely to see a marked period before full recovery, commodity prices have room for disappointment, and are likely to remain volatile.

"In the short-term, however, ongoing market enthusiasm is likely to be supportive and bring further gains," said Bishop.

The oil price last week rose above $50/barrel, for the first time since early March, the BER said in a note. "Growing optimism about vaccines allowing for a faster demand recovery has supported the price of late," the BER note read. "Although it is still only halfway through the month, the significantly higher oil price does mean that SA fuel prices are likely to increase at the start of January. This is despite the stronger rand exchange rate."

Herman noted that a robust global recovery would be good for commodities and, by extension, the rand.

"However, SA grows slower than its counterparts, so we'll be punished for that eventually as debt-to-GDP ratio goes above 100% and the budget deficit remains in double digits," he commented.