The rand held steady on Thursday, firming for a second day as investors welcomed the US Federal Reserve’s policy decision.
The Fed will from November begin scaling down its monthly asset purchases by $15bn, as expected, though the tapering does not mean policymakers will hike rates soon.
The central bank announced on Wednesday that it would cut US Treasury purchases by $10bn and mortgage-backed securities by $5bn, but left the door open to accelerating that pace. Fed chair Jerome Powell said the timing for tightening “will depend on the path of the economy”, adding that the Fed could be patient.
Investors had long anticipated the move, welcoming the Fed signalling that it wouldn’t be any more aggressive than necessary in raising interest rates once the bond tapering was finished — probably by the middle of 2022.
Signs of runaway inflation, driven in part by supply-chain disruptions, are proving to be a headache for policymakers around the world as they have the unenviable task of keeping prices in check without choking the global economic recovery.
The rand, which has been sensitive to perceptions of change in US monetary policy, recovered from R15.50/$ to record an intraday best of R15.1375/$ on Thursday on Powell’s favourable speech.
“The Fed announced the widely expected taper to their asset-buying programme, reducing purchases by $15bn a month. However, Powell kept a relatively dovish commentary regarding interest rates, in line with the transitory position on inflation. The dollar retreated in the wake of the FOMC announcement, commodity prices fell, and emerging-market currencies strengthened,” said TreasuryONE currency strategist Andre Cilliers.
Lower interest rates in the US and other developed markets make it more attractive to invest in fixed income in emerging markets where interest rates are higher.
At 5.49pm, the rand had strengthened 0.27% to R15.2156/$, 0.93% to R17.55632/€ and 1.86% to R20.50016/£. The euro was 0.65% weaker at $1.15386.
Despite closing the day weaker, the JSE all share hovered near the record highs reached in August, with the JSE all share falling 0.63% to 68,156.21 points and the top 40 down 0.75%. Industrial metals fell 2.9%, resources 1.42%, and food producers 1.04%. Precious metals gained 1.38% and listed property 1.23%.
At 6.56pm, the Dow Jones industrial average was 0.23% weaker at 36,075.15 points. In Europe, the FTSE 100 closed 0.43% higher, while France’s CAC 40 gained 0.53% and Germany’s DAX added 0.44%.
Shares in MTN Group, the largest mobile operator in Africa, rose the most in almost three months after it announced plans to proceed with an initial public offer to sell 575-million shares in its Nigerian business. The stock rose 6.71% to R147.59.
Gold gained 1.08% to $1,792.71/oz, while platinum lost 0.63% to $1,030. Brent crude was 0.75% firmer at $81.85 a barrel.
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