Dovish Fed unleashes JSE bullrun
RAND RAMPANT: HITS 19-MONTH HIGH AS DOLLAR RETREATS Anticipating reserve bank governors remains as difficult as ever as the rand keeps confounding the bears and portfolio managers.
Bears are running for cover in South Africa. The rand headed for a 19-month high on Thursday, continuing the momentum yesterday, with options traders turning the most bullish since August 2015, and stocks rose the most this year.
'Relief rally'
Traders called it a “relief rally,” meaning their fears of an aggressive rate-increase path in the US have been allayed by the Federal Reserve’s dovish stance on Wednesday.
Aside from the Seychelles rupee, the rand advanced the most among more than 150 currencies in the world on Wednesday after Fed Chair Janet Yellen said the latest rate increase didn’t imply a shift to aggressive monetary tightening.
That was a turnaround for a currency that had slipped below its 50-day moving average last week and developed a bearish “head-and-shoulders” technical pattern amid Fed tightening bets and domestic political tensions.
“Everyone was expecting this hike, but the market probably was expecting more of an aggressive stance,” said Wayne McCurrie, the head of portfolio management at Ashburton Investments in Johannesburg.
“The relatively dovish statement “pushed the dollar down which has pushed the rand and commodity prices up.”
While the US central bank raised its benchmark rate by a quarter-percentage point, Yellen sought to reassure investors that monetary policy will remain accommodative for some time. The rand jumped 2.9% after the statement.
The rand extended gains Thursday and yesterday, advancing 0.36% to 12.7648 per dollar. It was trading at 12.7562 yesterday afternoon at 1.33pm.
The FTSE/JSE All Share Index rose 1.8%, but retraced some of the gains yesterday, retreating 0.49% by mid-afternoon.
One-year interest-rate swaps dropped by the most since January 20, meaning that traders expect financing costs to fall.
The yield on 10-year government rand bonds fell 12 basis points, the biggest drop since November, to 8.54%, the lowest level in almost six months. Lower bond discounts indicate increasing demand and confidence in the economy.
One-month expected volatility on the rand, derived from options prices, dropped for a fifth day. The euro edged up against the dollar, also buoyed by the Dutch election, after a big jump on Wednesday.
Pound surprise
Sterling jumped after outgoing Bank of England policymaker Kristen Forbes unexpectedly voted for a rise in interest rates at the bank’s March meeting.
“Certainly, the Fed was dovish in their approach,” said Bruce Bittles, chief investment strategist at Robert W Baird in Sarasota, Florida. “The fact that the Fed raised rates, but not aggressively, but yet indicated that she had confidence in the economy certainly was a big help.”