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Rand firmer after Fed holds rates, stocks open weaker

The rand had tumbled to its weakest in four months in a 3-day slide, as the dollar rose to its strongest level in 2018 spurred by a bright economic outlook and rising yields on US Treasuries.

Picture: Supplied

JOHANNESBURG - The rand firmed almost one percent on Thursday, clawing back some ground following the US central bank’s decision to keep benchmark lending rates unchanged.

At 0650 GMT the rand was 0.65% firmer at R12.6225 per dollar compared with Wednesday’s close of R12.7075 overnight in New York.

The US Federal Reserve’s rate-setting committee kept rates unchanged, saying inflation had neared its target, while signalling a more gradual hiking cycle than some market watchers had expected, triggering a relief rally in most emerging market currencies.

The rand had tumbled to its weakest in four months in a 3-day slide, wiping out nearly all the so-called “Ramaphoria” gains, as the dollar rose to its strongest level in 2018 spurred by a bright economic outlook and rising yields on US Treasuries.

Improving sentiment towards South Africa’s economy and local assets ignited by Cyril Ramaphosa’s election as head of ruling African National Congress in December, and then state president in February, had taken the currency below the crucial R12.00 mark.

Traders, however, warned that the rand’s rally could be short-lived especially with US jobs data due on Friday and some first-tier European data before that.

“As the dollar rallies, we expect that the carry trade will come under pressure. It is not just because the rally in the funding currency (dollar) is eating away the carry returns, but also that the rising FX volatility is negative for the risk-adjusted returns,” said analysts at Nedbank in a note.

Bonds also opened firmer, with the yield on the benchmark 2026 paper down 2.5 basis points to 8.295%.

In stocks the blue-chip Top40 Index opened 0.45% lower at 51,320 points.

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