The volatile rand was back to its winning ways on Thursday trading 1.66% stronger to the dollar at R13.29 by 08:30, as yield players return to their risky emerging market currencies.

“Risk on” is back after a day's break, said Umkhulu Consulting’s Adam Phillips in a note on Thursday. “I would think that my R13.20/$ support level is going to be tested,” he said.

Despite good support coming in for the dollar on Wednesday, it all came to a short-term end at about 20:00 when the minutes from the July US Federal Reserve meeting showed that the majority did not favour putting up rates soon, Phillips said.

“The market had got 'puffed' into thinking that a rate hike could happen after several members made statements on Tuesday that rates could move up in September,” he said.

An interest rate hike in the US will likely see the rand deteriorate, so analysts are watching the US Fed with a keen eye to see what decision they might take.

South Africa – which slipped away from a rating downgrade earlier this year – is now the best performing emerging market for bonds and currencies. However, analysts caution that this could change very quickly.

The rand was also trading 1.22% stronger at R17.36 to the pound and 1.27% stronger at R15.03 to the euro.

When will the US Fed end the good party?

The Fed’s role is often said to be to take away the punchbowl just when the party is getting good, RMB’s John Cairns said in a note on Thursday.

“But we do not seem to be there yet,” he said. “The minutes showed that, as of late July, ‘some’ Fed decision-makers said they would like to raise rates in September, but that the majority wanted more evidence of growth and inflation before acting.

“The minutes can’t be said to have surprised anyone, but there is still relief that the Fed did not take a more hawkish tone,” he said. “So the party continues and risk assets can resume their rally.”

Local politics impacts rand

He said the rand’s underperformance unwound on Thursday as local political news turned more positive.

“Governments for all metros seem agreed, although some uncertainty remains over Johannesburg,” he said.

RMB analyst Gordon Kerr added that some “decent rand strength was noted once the EFF confirmed that it will be voting alongside the DA in the major metros”.

On the bonds side, it was just another range-bound market day, according to Kerr. “It’s been a while since we have traded in such a tight range, with the market becoming a bit desperate for something to happen,” he said.

“On the data front, retail sales disappointed to the downside, continuing to highlight the weak growth fundamentals,” he said. “While the data saw the dollar/rand trade lower, this proved to be short-lived, with bonds not reacting on the move.”

The next important event is when US Fed chair Janet Yellen speaks at Jackson Hole in the US on August 26.

“What is clear is that employment is not a concern in the US, it is rather inflation,” said Phillips. “The next Fed meeting is around September 21 and already the dollar bulls are showing their concern.

“I would think a rate hike is unlikely and from there the next meeting will be too close to presidential election to do anything,” he said.