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Johannesburg - The rand hit a month high against the dollar
on Wednesday after breaking through a resistance level, and government bonds
gained as markets expected further monetary stimulus out of the US Federal
Reserve.
Bonds were also buoyed by expectations that May inflation
will have eased back into the central bank’s 3% - 6% target in May due to a
drop in fuel prices.
The 2015 bond yield was down 2.5 basis points at a new
record low of 6.025% while the 2026 paper
dropped four basis points to 7.985%.
Economists have forecast annual inflation at 5.95% from 6.1%
in April, while on a monthly basis prices are expected to have stayed the same
in the two months. The data is due at 08:00 GMT.
Longer bonds have been outperforming the shorter end of the
yield curve in the past few sessions after a three-week rally of the
short-dated stock. Dealers say the front end now looks too expensive and yields
maybe rallied too fast and too quickly. The R186/R157 spread was retracing its
peak from last week.
The spread was at 196 basis points and the break through 200
basis points opens up 185 basis points, technical analysts say.
The rand was up 0.2% at R8.1849 to the dollar at 06:30 GMT,
from a R8.20 close in New York on Tuesday.
Local dealers will watch the Federal Reserve monetary
statement after local trade closes this evening, which is likely to see the
rand reacting in overnight trade.
“In the meantime the rand remains strong with the kind of a
risk-on rally we’ve seen over the last couple of days. We’ve seen it strengthen
very nicely from the R8.40 area down to sub-20 and as long as risk-on remains
the rand will be stable to stronger,” said RMB trader Jim Bryson.
If no stimulus is announced by the Federal Reserve as the market expects, local dealers say the rand could bounce back to R8.35. On the firmer side, R8.05 is next on the cards. A breach of that would in turn open up the big R8 level.
