South Africa's rand retreats as Fed pendulum swings back to soft cuts

19 Jul, 2019

At 1520 GMT the rand was 0.63pc weaker at 13.9275 per dollar from a session-best of 13.8150 in early trade after momentum from a local rate cut on Thursday, seen as a boost to faltering economic growth had lured investors looking to shed long dollar positions.

The South African Reserve Bank (SARB) cut rates by 25 basis points to 6.5pc in a unanimous decision on Thursday, although it struck a cautious tone suggesting future reductions to borrowing costs were not a foregone conclusion despite benign inflation.

On Friday the New York Federal Reserve walked back dovish comments from its president the prior day saying pre-emptive measures were needed to avoid too-low inflation and interest rates.

A New York Fed representative said New York Fed president John Williams' comments were not about immediate policy direction, dragging the greenback back from a two-week low. At 1520 the dollar measured against a basket of currencies was 0.37pc firmer.

The US central bank decides on rates on July 31.

Bonds also weakened, with the yield on the benchmark 10-year government issue adding 4.5 basis points to 8.02pc.

On the bourse, stocks rose along with emerging market shares and currencies after comments from a top Federal Reserve official reinforced expectations of a US interest rate cut this month, stoking demand for riskier assets.

The benchmark Johannesburg Stock Exchange Top-40 Index was up 0.72pc at 52,107.18 points while the broader All-Share Index closed 0.65pc higher at 58,248 points.

Musa Makoni, GT247 trader, said trades were firmer earlier in day, following the trend in Asia, with stocks in Europe and the US also on the up.

He also highlighted the performance of Pioneer Food Group , which shot up 32.09pc to 101.35 rand after it was bought by PepsiCo for $1.7 billion dollars.

Shares in agribusiness investment company Zeder Investments, which holds Pioneer as part of its portfolio, also rose 23.17pc.

Other blue-chip winners of the day include mining company Gold Fields which rose 2.97pc and services, trading and distribution company Bidvest which was up 2.83pc.

Copyright Reuters, 2019

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