#RandReport: Rand at 3-1/2 month high after dovish Yellen comments

Yellen said the central bank should be cautious in raising interest rates.

Picture: Christa Eybers/EWN.

JOHANNESBURG - The rand stretched a rally to a 3-1/2 month high late on Wednesday while government bonds also shone after Federal Reserve chair Janet Yellen's dovish comments sparked an emerging markets comeback.

Resources lifted stocks higher, buoyed by high commodity prices on the back of a weaker dollar after Yellen's comments on Tuesday.

The rand roared to its best since mid-December, and by 1550 GMT had gained 1.8 percent to 14.8900 per dollar as emerging market currencies rose after Yellen said the US central bank should be cautious in raising interest rates.

Government bonds tracked the currency firmer, with the benchmark paper due in 2026 cutting 16 basis points to 9.165 percent, its firmest in three weeks.

The currency's reaction to an ongoing wrangle between Finance Minister Pravin Gordhan and the Hawks police unit was muted.

On Wednesday, Gordhan met a deadline set by the policy agency to answer questions about his role in setting up an intelligence gathering arm in the revenue service during his time as commissioner.

Analysts said risks to the rand included South Africa's Constitutional Court ruling on Thursday on whether Zuma should pay back some of the R240 million ($16 million) spent by the state on renovating his private Nkandla home, as well as a raft of local data releases set to show the economy remained weak.

"We're still expecting a reflection of the economic weakness of the fourth quarter spilling over into this one," said senior Nedbank economist Isaac Masthego, speaking of trade, vehicle sales and producer inflation figures due on Thursday.

"We see growth at only 0.2 percent for this year. The probability of a recession is very high," Masthego said.

On the equities market, assets got a boost from a weaker dollar, which sent commodity prices higher, lifting the shares of producers up with them.

The dollar fell to a near two-week low, making oil and other commodities denominated in the greenback more attractive to users of other currencies.

Impala Platinum ended 5.77 percent firm at 45.27 rand and Anglo American Platinum jumped 4.86 percent at R369.12.

"The Fed had a dovish tone and as a result the dollar weakened, which is good for commodity prices. So resources are up on the back of stronger commodity prices," said BP Bernstein trader Vasili Tirasis.

The Top-40 stock index was up 1.32 percent at 46,422 points, while the broader all-share rose by 1.37 percent at 52,495. ($1 = 15.0409 rand)