Rand up on Fed move as market anticipates rate hike

Johannesburg - The rand firmed up on Thursday after the US Federal Reserve kept interest rates on hold and sounded cautious on the outlook, giving investors leeway to put money back into emerging markets.

Stocks climbed as well, with the broad All-share index up 0.63% and the blue-chip Top 40 0.85% firmer.

The rand was changing hands at R16.3700/$ by 09:22, 0.46% firmer than its R16.4450 Wednesday close in New York.

The Fed kept interest rates unchanged as expected, and said the US economy is still on track for moderate growth and a stronger labour market even with "gradual" rate increases.

"The market’s response to the Fed statement has been as mixed as the message itself, but emerging markets have done well, seemingly because the Fed was not too hawkish," Rand Merchant Bank's currency strategist John Cairns said in a note.

As central banks in some advanced economies move away from the era of historically low interest rates, emerging markets that have wide current account deficits to fund are expected to be hit the hardest as the supply of liquidity tightens globally.

Back home, however, the Reserve Bank is expected to raise interest rates later in the afternoon as it looks to curb climbing inflation.

"If the South African Reserve Bank (Sarb) do indeed hike as much as expected, with most of it being priced in already, I don’t envisage a huge change in currency dynamics, or equities for that matter," said Standard Bank's currency trader Warrick Butler.

But an expected hawkish statement from the Sarb should keep investors on their toes as they ponder the state of the advanced, yet slowing, economy.

Government bonds were mostly weak in early trade, with the yield on paper due in 2026 adding 0.5 basis points at 9.610%.