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Rand clings on to post-Fed windfall after recession shock

The rand firmed on Wednesday, finding relief in a surprise rate cut by the US central bank after a sharp selloff triggered by data showing the economy is in recession.

Picture: EWN

JOHANNESBURG - The rand firmed on Wednesday, finding relief in a surprise rate cut by the US central bank after a sharp selloff triggered by data showing the economy is in recession.

At 1525 GMT, the rand was 0.71% firmer at R15.3000 per dollar, backing down from a five-session best of R15.2100 on Tuesday touched after the US Fed delivered an emergency 50 basis point lending rate cut just as local markets closed.

Before that, the stats agency reported Africa’s most advanced economy had entered its second recession in two years in the final quarter of last year, shrinking by a forecast-smashing 1.4% as a swathe of industries were hit by months of regular power outages.

The data stoked already bearish sentiment around the currency following last week’s budget in which the treasury chopped its 2020 growth forecast to 0.9% and announced estimates of a higher budget deficit - making a credit downgrade by Moody’s at the end of the month a near certainty.

“It is impossible to know what is going to happen with the world’s central banks in full panic mode,” said Standard Bank chief trader Warrick Butler.

While the Fed move set off some big inflows into emerging markets as the greenback hovered near five-month lows, early morning moves in risk assets were more muted as investors tried to digest the ongoing impact of the coronavirus.

“The action taken by central banks shows their hand, and they are worried. We should be too, then. It’s expensive but I feel you have to remain defensive as far as owning risky assets is concerned,” Butler added in a note.

Bonds, which have also traded in a volatile range, were on the front foot, with the yield on the 10-year 2030 government issue down 9 basis points at 8.875%.

Stocks fell slightly, with the Johannesburg Stock Exchange’s Top-40 index slipping 0.23% to 47,560 points and the broader all-share index closing 0.06% lower at 52,927 points.

Gold stocks were the biggest winners, with Gold Fields , AngloGold Ashanti and Sibanye Stillwater topping the blue-chip index, up 5.12%, 4.38% and 3.74% respectively.