Fin24

Rand jumps on dovish Fed

2012-01-26 09:02

Johannesburg - The rand climbed to its firmest in more than two months against the dollar on Thursday after strong overnight gains based on expectations that US interest rates will stay low for longer than previously expected.

US Federal Reserve chairperson Ben Bernanke kept interest rates near zero on Wednesday, and said they would probably remain at those levels until 2014.

The dovish stance sent investors flocking to higher-yielding currencies such as the rand, which firmed to R7.8702, its strongest in 10 weeks.

The rand was trading at R7.8830 to the dollar at 06:30 GMT, not far from Wednesday’s New York close of R7.8850. Higher gold prices also supported the currency.

“The dovish Fed caused the dollar to weaken 1.2% on a trade-weighted basis and Wall Street and risky assets rallied. This risk-on mood has continued during this morning,” Absa Capital said in a note.

“In light of the improved levels of risk appetite, dollar/rand could be headed for R7.81 in the short term, and bonds are likely to be well bid, especially at the longer end of the curve.”

Bonds firmed in line with the rand, with the yield on the 2015 issue down nine basis points to 6.57% and that on the 2026 bond falling 6.5 basis points to 8.31%.

On the data front, producer price inflation (PPI) data for December will be released at 09:30. Economists are expecting PPI to hold steady at 10.1% year-on-year.