Rand on a roll upwards in mixed trading
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.