Rand at five-month high on dovish Fed
The rand’s rally continued on Thursday afternoon after US Federal Reserve chair Jerome Powell’s dovish testimony saw the it reach its best level in five months in intra-day trade.
The first day of Powell’s two-day testimony before US law makers served as an indication to investors that an interest-rate cut is on the cards at the Fed’s next meeting later this month. Powell said the US-China trade war and concern about global growth have weighed on the US’s economic outlook. Expectations that the Fed will ease monetary policy pushed the rand to below R13.90/$.
“As can be seen from equities and risky assets, the dovish bias of the committee still holds,” currency trader at Standard Bank Warrick Butler said in a note. “The chances of a 25-basis-point (bps) cut at the end of the month are almost at 100% now with the market re-assessing their earlier predictions of another 25bps cut before the end of the year, albeit with slightly less enthusiasm now.”
At 2.40pm, the rand had strengthened 0.69% to R13.8879/$, 0.47% to R15.66/€ and 0.21% to R17.4549/£. The euro had gained 0.23% to $1,1276.
The benchmark government 10-year bond was stronger, with its yield falling 9.5 basis points to 8.01%. Bonds yields move inversely to bond prices.
Gold had fallen 0.22% to $1,415.71/oz and platinum 0.12% to $825.85, while Brent crude was 0.59% higher at $67.04 a barrel.
Figures released by Statistics SA on Thursday showed that the manufacturing sector grew by 1% year-on-year in May, while mining production contracted 1.5%. The Trading Economics consensus was for mining to have contracted 2.5% and manufacturing to have expanded 1.4%.