Johannesburg - The rand and bonds firmed on Monday against the dollar on the back of Federal Reserve Chairman Ben Bernanke’s dovish comments, triggering a large sell-off from the greenback against most emerging market currencies.
Bernanke’s warning that the US economy needed to grow faster to get the unemployment rate down boosted hopes early in the session that the bank could yet conduct another round of quantitative easing.
The rand performed the best out of a group of 20 emerging markets currencies compiled by Reuters. In early evening trade it was 1.02% firmer than the US dollar, trading at R7.6/$.
“We have basically seen offshore selling throughout the day, we have seen the dollar weak against the euro and commodity currencies,” said a Johannesburg trader.
“Dovish comments from Bernanke led to more selling of the dollar across the board and that’s been supportive of the rand,” he added.
Government bonds also firmed, with the yield on the 2015 bond dropping eight basis points to 6.750% and that on the longer dated 2026 note falling 8.5 basis points to 8.375%.
Inflation pressures in South Africa are now likely becoming more generalised, reflecting demand-side pressure rather than only external factors, the South African central bank warned on March 15.
“But the market has shifted from expecting an aggressive wording towards a more dovish speech,” said Di Luo, a fixed income strategist at HSBC.
Since then February inflation has come in below the market consensus, backing the case for keeping rates lower for longer.
A poll of 24 economists surveyed by Reuters expects the South African Reserve Bank to keep its repo rate at historical lows of 5.5% after its monetary policy setting meeting on Thursday.