Rand on a roll up­wards in mixed trad­ing

The Star Early Edition - - BUSINESS REPORT - Ka­belo Khu­malo

THE RAND yes­ter­day basked in the dovish mon­e­tary tone taken by the US Fed­eral Bank a day ear­lier while it shrugged off the hawk­ish tone taken by the Bank of Canada as the lo­cal unit ex­tended its gains against the ma­jor cur­ren­cies.

How­ever, gold min­ing stocks re­treated in the face of a bullish rand, shed­ding more than 1 per­cent in yes­ter­day’s trad­ing ses­sion.

The lo­cal unit was trad­ing at R13.27 against the green­back, R15.12 against the euro and R17.12 to the pound, while gold min­ing stocks tanked 2 per­cent.

An­a­lysts from Mo­men­tum SP Reid yes­ter­day said the pub­lic pro­nounce­ment by US Fed chair Janet Yellen that the US would opt for a grad­ual in­crease of its in­ter­est rates has pro­vided a short-term cat­a­lyst for risk as­sets and that the lo­cal bourse would also ben­e­fit.

Brisk

“Yes­ter­day’s im­proved per­for­mance on the rand was sur­pris­ingly brisk as sup­port emerged at around the 200-day mov­ing av­er­age.

“There is in­suf­fi­cient ev­i­dence as yet to in­di­cate that the ad­just­ment rep­re­sents the com­mence­ment of a sus­tain­able move firmer by the rand.

“The com­bi­na­tion of an im­proved US per­for­mance, a pos­i­tive tone on Asian mar­kets, im­prov­ing short-term tech­ni­cal and mo­men­tum con­sid­er­a­tions will al­low for ad­di­tional mod­est im­prove­ment on the JSE,” Mo­men­tum SP said.

Emerg­ing eq­ui­ties surged to 26-month highs yes­ter­day while emerg­ing mar­kets cur­ren­cies firmed across the board col­lec­tively adding 1 per­cent to 2 per­cent in the day.

Yellen’s tes­ti­mony be­fore US leg­is­la­tors on Wed­nes­day and

Yellen was more dovish than ex­pected and she was rel­a­tively up­beat about the econ­omy

of Canada had hiked its in­ter­est rates to 0.75 per­cent from 0.5 per­cent – its first rate hike in seven years.

The move was ex­pected to be a start of hawk­ish mon­e­tary pol­icy in de­vel­oped coun­tries.

Al­let Op­per­man, an an­a­lyst at Trea­suryOne, said mar­kets did re­act much more than one would have ex­pected after Yellen’s speech to US Congress, and her ad­dress cre­ated some­what of a risk on en­vi­ron­ment as ex­pec­ta­tions of a third rate hike this year was now be­low 50 per­cent.

“The emerg­ing mar­kets have ral­lied on the back of this news and the lo­cal bond mar­ket was one of the main ben­e­fi­cia­ries as the R186 closed on 8.76 per­cent yes­ter­day.

“The feel­ing is that for­eign events are more likely to be the main driv­ing force of our cur­rency as the lo­cal po­lit­i­cal events are priced in by now,” Op­per­man said.

Wind down

Yellen, how­ever, did in­di­cate that the Fed would con­tinue with its plans to wind down its mas­sive $4 tril­lion bal­ance sheet it had built up in the af­ter­math of the 2008 fi­nan­cial cri­sis as it aimed to drive down long-term rates for mort­gages and other loans.

But, with US em­ploy­ment hav­ing gone down from 10 per­cent in 2009 to 4.4 per­cent cur­rently, Yellen said the bank would stop rein­vest­ing the as­sets as they ma­tured by grad­u­ally in­creas­ing the lim­its on a num­ber of se­cu­ri­ties it al­lowed to roll off its books.

David O’ Don­nell, a se­nior for­eign ex­change dealer at Mer­chant West, said the rel­a­tive un­der­per­for­mance of the rand the past week had been re­versed.

“Yellen’s com­ments were more dovish than ex­pected and she was rel­a­tively up­beat about the econ­omy, but did not com­pletely dis­miss the re­cent slow­down in in­fla­tion as an aber­ra­tion, while re­peat­ing the view the peak Fed funds rate in this cy­cle will not have to be very high,” O’Don­nell said.

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