Rand gains as Fed knocks dollar

Cape Town - The rand received a welcome boost on Thursday after dovish comments by US Federal Reserve chairperson Janet Yellen placed the dollar on the back foot.

TreasuryOne dealer Phillip Pearce said the USD Fed unsurprisingly held rates steady, but signalled that inflation remains persistently low despite the economy picking up steam.

Yellen also said that the Fed will start unwinding the balance sheet relatively soon.

"These dovish comments have put the USD on the back foot, with commodities, equities and all currencies rallying. All emerging markets are trading firmer this morning."

By 10:12 the local unit was trading 0.8% stronger at R12.89 against the greenback, after strengthening to  R12.85 earlier in the session.

Pearce said the break below R13/$ is solely a function of dollar weakness and can’t be attributed to rand strength just yet. 

He said Asian stocks have risen to the highest levels in almost a decade as markets bet that the Fed will leave rates unchanged in the short term.

"As investors begin to seek yield again, emerging markets should also fall back into favour as the flat line starts to show some life and the rand could move lower."

RMB currency strategist Isaah Mhlanga said moving averages point to further downside, with the next level to watch being R12.70, and then R12.60/65 against the US currency.

"The US dollar index – a weighted basket of the greenback against major currencies – weakened to 92.97, the lowest levels since June 19 2016. As has usually been the case recently, rand performance is almost entirely driven by dollar performance.

"Consequently, the local unit has gained against all three majors, recouping all pre-Fed losses against the dollar – and more than half the losses against the euro and the pound. The dollar looks set for further weakness; the rand, therefore, still has some steam to gain – particularly against the euro and the pound as it is yet to return to the week’s opening levels," said Mhlanga.

Gold broke into the $1 260s per ounce on Thursday, also on the back of the weaker dollar.

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