US Markets

South Africa's rand flat ahead Fed decision

Credit: REUTERS/THOMAS WHITE

South Africa's rand marked time on Wednesday as investors waited to hear the outcome of the U.S. Federal Reserve's latest policy meeting.

Adds latest figures, analyst comments

JOHANNESBURG, July 29 (Reuters) - South Africa's rand marked time on Wednesday as investors waited to hear the outcome of the U.S. Federal Reserve's latest policy meeting.

The Fed is expected to provide reassurance of endless stimulus for the U.S. economy in a statement at 1800 GMT (2 p.m. EDT) but no major policy changes are expected.

At 1530 GMT the rand ZAR=D3 was 0.06% firmer at 16.5250 per dollar compared to an overnight close of 16.5350.

Local inflation for June was in-line with expectations, with price-growth at 2.2% year-on-year from 2.1% previously. The data came a week after the South African Reserve Bank cut lending rates to a new record low but signalled it was close to ending its easing run.

With other emerging market central banks cutting rates, and stimulus packages in developed markets providing excess liquidity, the yield differential, or carry, offered by the rand remains attractive, keeping investor focus off the country's mounting fiscal fragility.

The International Monetary Fund on Monday approved $4.3 billion in emergency financing for South Africa, but warned of looming debt stresses.

Yield-hungry investors took it in their stride, pushing the rand close to its best in six weeks before pausing ahead of the Fed meeting.

Forward rates for the rand indicate the currency will remain in a narrow band below 16.70 with most of the COVID-19 related economic data factored in and fiscal risks yet to materialise.

"South Africa suffered one of the largest peak-to-trough falls in GDP of any EM, and the recovery will also be one of the weakest. As a consequence, interest rates will stay low for longer than most expect," said analysts at Capital Economics.

The Johannesburg Stock Exchange (JSE) continued its bullish run for the week with the FTSE/JSE All Share Index .JALSH up 0.39% to end at 56,708 points while the FTSE/JSE Top 40 Companies Index .JTOPI closed up 0.39% at 52,246 points.

Bonds firmed slightly, with the yield on the long-dated government benchmark bond due in 2030 ZAR2030= down 1 basis point to 9.255% from the previous close.

(Reporting by Mfuneko Toyana and Promit Mukherjee; Editing by Kirsten Donovan)

((mfuneko.toyana@thomsonreuters.com; +27117753153; Reuters Messaging: mfuneko.toyana.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

World Markets

Latest Markets Videos

Reuters

Reuters, the news and media division of Thomson Reuters, is the world’s largest international multimedia news provider reaching more than one billion people every day. Reuters provides trusted business, financial, national, and international news to professionals via Thomson Reuters desktops, the world's media organizations, and directly to consumers at Reuters.com and via Reuters TV.

Learn More