Publications
Partners
Johannesburg - The rand has made sharp gains overnight following rumours that US President Donald Trump will nominate a new chair for the Federal Reserve.
Bloomberg on Thursday reported that Trump plans to nominate Jerome Powell, a member of the Federal Reserve Board of governors, to replace Janet Yellen as chairperson.
The move “buoyed” emerging market currencies, Andre Botha, dealer at TreasuryOne said in a market update.
The rand strengthened from R14.00/$ to as much as R13.90.
“The reason for this sudden move in the market is due to the perception that is being portrayed by the market of Mr Powell.
“There is enough evidence to suggest that Powell is the reincarnation of outgoing Fed chair Janet Yellen, only in a male form,” he explained.
“This indicates that the Fed will remain cautious in hiking rates next year and keep their policies prudent.”
Only two hikes
Given Powell’s dovish nature, risky assets gained ground due to the perception that the Fed would not hike more than twice next year, explained Botha.
“Should the rumours be right, we can expect further rand strength when the announcement becomes official later on this [Thursday] evening.”
Currency economist at Rand Merchant Bank John Cairns said that there may be doubts that this is a done deal, with markets expecting a 90% chance. For this reason there could be more rand gains following the announcement.
Markets have already priced in a December Fed hike, said Cairns. “Something extraordinary would have to happen to change this.” Cairns shared views that only two hikes are expected next year.
This recovery comes after the rand's cataclysmic drop to its weakest level of R14.10/$ in 11 months, following Finance Minister Malusi Gigaba’s maiden budget speech last week.
The rand was trading at R13.92 to the greenback just after 10:15.
SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.
Read Fin24's top stories trending on Twitter: Fin24’s top stories
