Rand firms after CPI falls sharply focus on US Fed
The rand firmed against the dollar on Wednesday as consumer inflation slowed sharply.
JOHANNESBURG - The rand firmed against the dollar on Wednesday as consumer inflation slowed sharply, drawing buyers into the market before a much awaited policy statement on rates by the US Federal Reserve.
By 1444 GMT the rand had firmed 0,28 percent to 12,3190 per dollar, bolstered by February data earlier in the session showing headline inflation had slowed to 3,9 percent year on year, its lowest in nearly four years.
"People are wary of risking too much before the Fed statement," said Ion de Vleeschauwer, chief currency dealer at Bidvest Bank explaining why the rand had firmed.
"If the Fed comes out dovish the rand could go to the lower 12,20's, which is a level where there could be renewed importer demand," de Vleeschauwer added.
But the United States central bank's latest policy meeting is likely to see the bank discard a pledge to remain "patient" before hiking rates.
This would pave the way for policy tightening as early as June, setting the stage for increased capital flows out of risky emerging market assets like South Africa as investors chase safer yields in the US
"If the Fed drops the word patience then the dollar should rally significantly," de Vleeschauwer said.
The dollar has already gained more than 20 percent against major currencies over the past year, while the rand has depreciated by more than seven percent versus the greenback in 2015 on its way to 13-year lows, a level it touched on Friday.
Government bonds were firmer on the day, with the benchmark paper due in 2026 shedding three basis points to 7,89 percent.