Rand at near six-month low as US Fed signals that it will ease stimulus

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By Siphelele Dludla Time of article published56m ago

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THE RAND FELL to a near six-month low and breached the R15 level in the face of a stronger dollar yesterday after the US government indicated that it was preparing to ease stimulus to the economy.

The US Federal Open Market Committee has stated that there is a likelihood of the Fed starting the taper of their bond purchases to the back end of this year.

The Fed’s expected reduction of the central bank’s emergency monthly purchases of $120 billion (about R1.82 trillion) of US Treasury bonds and mortgage-backed securities immediately triggered a risk-off sentiment.

The rand was trading 1.03 percent lower at R15.03 to the greenback by 4pm, its lowest level since early March, as the dollar gained strength on the prospect of an early tapering.

By 5pm the rand was bid at 15.15 to the greenback.

TreasuryONE’s currency strategist, Andre Cilliers, said the momentum was stacked against the rand and emerging currencies as soon as the Fed released its minutes.

“The Fed minutes caused the markets to trade in a roller-coaster fashion since the release of the minutes,” Cilliers said. “The rand dipped to R14.85 after the release of the minutes, but after the initial drop, the rand weakened in the face of a stronger dollar.”

South Africa’s currency has also been battered by fears of a slowdown in global growth because of the Delta variant, which is spreading fast across many economies.

There are also investor concerns about a looming fourth wave of Covid-19 infections around November, fuelled by the Delta variant and the slow pace of vaccination roll-out.

Meanwhile, stocks on the JSE weakened to a one-month low following delayed trading on Wednesday.

The FTSE/JSE All Share Index sank almost 3 percent to about 65 934 points during intraday trade, its lowest since July 20 as almost all indices were trading in the red.

The delayed opening of the JSE on Wednesday caused havoc on the markets, as trading was stalled for half of the day, supporting the narrative that South Africa was under-invested.

An unprecedented number of transactions from the previous trading session had to be captured as the system struggled to cope with more than R145 billion in transactions from the Naspers-Prosus share-swop deal.

Naspers, the JSE’s largest company by market capitalisation, reduced its weighting in the Top 40 Index, the Indi25 and other indices to rebalance its oversized weighting on the local bourse. The share-swop deal will increase the free-float of Prosus shares and help to have its shares included in more indices on the Amsterdam Stock Exchange.

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