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Rand gains as Fed stokes risk buying

Since breaching R14.00 on Wednesday, the rand has seen steady inflows, bringing gains at the end of the week to about 2.5%, with resistance at R13.8500 not far off.

Picture: EWN

JOHANNESBURG - The rand rallied to a five-month high on Friday as expectations the Federal Reserve would cut US interest rates and the prospect of a debt-equity swap for ailing utility Eskom stoked demand for the currency.

At 0650 GMT, the rand up 0.4% at R13.9200 per dollar from its close of R13.9700 in New York, boosted by comments from Fed Chairman Jerome Powell that bolstered rate-cut expectations.

Bets the Fed would cut rates by 50 basis points at its 30-31 July meeting were undermined by data showing accelerating inflation and declining unemployment claims, but risk demand remained buoyant.

“The translation of higher UST yields has not dampened the flight to risky assets yet, with the rand in particular, enjoying the fruits these inflows,” Standard Bank’s chief trader, Warrick Butler, said in a note.

Since breaching R14.00 on Wednesday, the rand has seen steady inflows, bringing gains at the end of the week to about 2.5%, with resistance at R13.8500 not far off.

Also helping the currency were media reports on Thursday that state asset manager Public Investment Corporation might consider converting the $6.4 billion debt of struggling state power utility Eskom to equity.

Finance Minister Tito Mboweni told lawmakers late Thursday the treasury intended to introduce a bill in parliament on 23 July to give Eskom more money for the current financial year and next.

Bonds retreated, with the yield on the benchmark 2026 issue rising by 2.5 basis points to 8.055%.

In equities, the focus was on results from furniture maker Steinhoff, which are expected late in the session. In 2017, the company disclosed holes in its accounts that to the exposure of an accounting fraud worth more than $7 billion.

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