Rand rallies as dollar extends post-Fed losses

The rand made strong gains on Thursday, bolstered by bets that the US Federal Reserve has reached the end of its interest rate hikes.

The Fed on Wednesday raised interest rates by a quarter of a percentage point, as expected, but traders appeared unconvinced by Fed Chair Jerome Powell’s comments leaving the door open to another hike in September.

The dollar was down about 0,4 percent against a basket of global currencies, extending losses from Wednesday, while risk appetite globally was buoyed by the prospect of an end to Fed tightening.

“We’ve likely arrived at peak rates in the US,” said Nolan Wapenaar, co-chief investment officer at South African asset manager Anchor Capital.

“We expect that the Fed holds at their meeting in September and by the time of the next meeting in November inflation seems to be sustainably on the trajectory lower,” he added.

Data on Thursday showed South African producer inflation slowed sharply in June to 4,8 percent in annual terms from 7,3 percent in May, whereas analysts polled by Reuters had expected a smaller slowdown to 6,0 percent.

That did little to move the rand, but added to evidence seen in consumer inflation numbers that price pressures in Africa’s most industrialised economy are easing considerably.

Slowing inflation and the South African central bank’s decision to leave its main interest rate on hold last week have spurred buying of government bonds and contributed to the rand’s strong showing in July, with the currency now up more than 7 percent against the dollar this month.

Another factor helping the rand is investors’ belief that a Chinese stimulus package will drive growth in its economy and in metal-producing nations like South Africa, said Casparus Treurnicht, a Gryphon Asset Management portfolio manager.

On the Johannesburg Stock Exchange, the blue-chip Top 40 index last traded almost 0,6 percent stronger than its previous close. South Africa’s benchmark 2030 government bond was stronger, the yield down 7 basis points to 10,185 percent. — Reuters