adminUK, Europe and Japan have brought volatility to low levels making higher yielding assets like the rand more favourable. The so-called carry trades have been boosted by low rates increasing demand for high-yielding assets as we see investors borrow dollars, pound, yen and euro to finance projects in frontier countries.
The rand advanced as investors sought better yield on their investments as investors believe that emerging markets have stronger and improving fundamentals as well as better valuations to their portfolios. The rand gained against the dollar to trade at 7,5857 from 7,6828 and advanced against the euro to touch 9,901.
There’s a likelihood that the European finance ministers will definitely increase their bailout fund and that will improve risk-on trade pushing the market to go for long high-yielding assets. A lot of factors are likely to add onto the risk positive environment, as sentiment will also push investors to consider the euro and shorten the dollar.
The euro rose against the dollar to trade at US$1,3368 from US$1,3347 as the Fed indicated that they would loosen their monetary policy going forward to at least resuscitate their ailing unemployment numbers that have become a concern.
This will bring huge swings in the euro-dollar currency pair, as a loose monetary policy will hurt the dollar. The dollar rose against the yen to 82,85 and the euro gained against the yen to trade at 110,67. The euro advanced against the pound sterling to trade at 83,64 from 83,47 pence per euro. The market has since put a temporary pause on risk aversion as appetite drove growth-related currencies into ecstasy.
In London the pound sterling extended gains as the Fed signalled that it would loosen its monetary policy putting more pressure on the dollar denominated assets. The pound gained to touch US$1,5967 against the dollar as investors bought in more pounds as this became the haven currency in their quest to participate in the so-called carry trades as they seek for better valuations.
The pound sterling was little changed against the euro as it traded at 83,64 pence per euro. The wild card for the pound strength was the Federal Reserve indication that a stimulus package was on the cards to help create jobs in the US.
The Swiss franc fell against the euro to trade at 1,20604 and gained against the dollar to touch 90,90 US cents its biggest intraday move in more than a week. In the South Pacific the Australian dollar advanced after the Federal Reserve indicated that a faster growth is needed to cut on the jobless rate and can be done through adding more stimulus on the US market.
The Aussie dollar climbed being supported by a commodity price increase and concern eased on Europe as it touched US$1,0508 against the dollar and rallied against the yen to touch 87 yen. A Chinese soft landing had earlier dragged the Australian dollar down but trimmed losses against the major currencies on renewed hopes that the Federal Reserve will stimulate the economy and European concern eased.
Commodity markets
Gold regained its shine as the Federal Reserve statement drove the bullion higher to touch US$1 690,75 an ounce. A gold rally was buoyed by prospects that investors will need to buy the bullion as an alternative to the slumping dollar. Investors are being pushed to be long gold buyers as the risk-positive environment continues to improve. Gold performs better during times of higher announcement supported by certain fundamentals.
In energy, crude oil gained on Federal Reserve statements on loose monetary policy pushed the commodity higher. Crude oil jumped to trade at US$107,03 a barrel also trading on supply fears likely to be affected by Syrian war and Iran tensions. My chart of the day is low volatility means long emerging market currencies supported by low interest rates in the G-4 countries.
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