Rand leads emerging market gains

Johannesburg - The rand strengthened to a 11-week high against the dollar as prospects for stimulus in major economies boosted demand for riskier assets. The currency weakened against the pound as an expected immediate UK rate cut failed to materialise.

The rand jumped 1.7% to 14.2423 against the dollar by 14:00 in Johannesburg, set for the strongest close since April 29 and leading gains among 24 emerging-market currencies tracked by Bloomberg. The rand was little changed against the pound after weakening as the Bank of England left its key interest rate at a record low and signalled it’s readying stimulus for August. Investors had priced in a more than 80% chance of a cut on Thursday.

Speculation that central banks will boost stimulus has added more than $4trn to the value of equities worldwide since June 27.

Most policy makers at the British central bank expect monetary policy to be loosened next month, the minutes of their meeting held on Wednesday. A key adviser to Prime Minister Shinzo Abe said former Fed chairperson Ben Bernanke had floated the idea of perpetual bonds to stimulate Japan’s economy. Investors see about a 5% probability of a rate increase at the Federal Reserve’s July meeting.

Central banks

“You’ve got rather dovish expectations around the Fed; you’ve also got quite lofty expectations in the market around central bank intervention from the BOE on Thursday and also fairly lofty expectations around the BOJ,” said Mohammed Nalla, head of strategic research at Nedbank in Johannesburg.

“Everyone assumes that if the central banks are going to be priming the pump, so to speak, that’s going to entrench this global search for yield.”

Johannesburg’s benchmark stock exchange was 0.1% higher, after earlier advancing as much as 0.4%. Yields on benchmark South African bonds dropped 8 basis points to 8.64% after being as low as 8.62%.

“The market’s expectation around central banks is exceptionally dovish and as a result, we could be susceptible to a little bit of disappointment in the event that central banks don’t deliver as much as the market’s currently pricing in,” Nalla said.