Rand gains 2% in rally against euro dollar, pound
Fed gradually to raise interest
THE RAND yesterday shrugged off US Federal Reserve chairperson Janet Yellen’s warning that the central bank would raise interest rate at a gradual pace and maintained its bullish mood against a weaker US dollar stunned by released e-mails of meetings between President Donald Trump’s son and a Russian lawyer last year.
The e-mails put the Trump presidency under further scrutiny as the young Trump acknowledged that he was told before the meeting that the lawyer had potentially damaging information on Hillary Clinton.
The e-mails apparently came from officials in Moscow as part of an effort to help Trump’s presidential campaign.
The rand gained nearly 2 percent against the greenback to trade at R13.2703 by 5pm, while it firmed to R17.1031 against the pound and R15.1574 against the euro.
Tiffany Pollock, an analyst at Merchant West, said that the rand had strengthened on the back of political noise from the White House that had put the greenback on the back foot.
Pollock said the global monetary policy environment would be instructive for the rand in the next sessions.
“Foreign investors seem to see the rand weakness as an opportunity. While sentiment locally has become very bearish, foreigners have been picking up bonds aggressively,” Pollock said
“While we usually do not care about Canadian monetary policy, if the Bank of Canada goes through with its first hike since the crisis yesterday, then the yields pressure may mount even further. On the contrary, the Bank of Japan on Friday fought back against the rise in yields by providing massive liquidity,” Pollock said.
Canada’s central bank was expected to hike interest rates for the first time since 2010, signalling the tightening of monetary policy in developed economies after the European Central bank and Fed stance.
In her semi-annual testimony on the economy, Yellen took note of a number of encouraging factors, including strong job gains and rising household wealth that she said should fuel economic growth over the next two years.
She blamed a recent slowdown in inflation on temporary factors. But she says Fed officials are watching developments closely to make sure that annual price gains move back toward the Fed’s 2 percent target.
“Considerable uncertainty always attends the economic outlook,” Yellen said in her prepared speech for the US House Financial Services Committee.
“There is, for example, uncertainty about when – and how much – inflation will respond to tightening resource utilisation.”
She indicated that the US was committed to reduce its $4.5 trillion (R60.88trln) balance sheet it had built up during and after the 2008 financial crisis and expected the Fed to keep raising interest rates at a gradual pace.
The sharp retracement of the rand yesterday provided a slight relief for the local unit that has been battered since last week after the ruling ANC took a policy decision to change the ownership of the South African Reserve Bank while it affirmed the independence of the central bank.
The local unit has lost between 4 percent and 10 percent of its value against other risk currencies in the past month, with 4 percent being against other emerging market currencies and 10 percent against the dollar bloc currencies of Australia, New-Zealand and Canada.
Allet Opperman, an analyst at TreasuryOne, said that over the past couple of weeks, the rand has lost almost 60 cents against the US dollar and close on a rand against the euro.