Rand edges firmer after Fed chief strikes dovish tone

South Africa’s rand was firmer in early trade on Friday after leading emerging market losses overnight, with the recovery aided by indications that the United States central bank will keep lending rates low and monetary policy loose.

At 0645 GMT the rand was 0.23% firmer at R15.28 per dollar, recovering from a slide to a 5-week low of R15.35 overnight as the greenback raced to new highs against most currencies as US Treasury yields rose again.

Rising US bonds yields and the possibility of the Federal Reserve retreating from its massive bond buying programme has fuelled fears of another “taper tantrum” like in 2013 when emerging markets were hit hard.

But on Thursday Federal Reserve Chair Jerome Powell reiterated a commitment to maintain ultra-easy monetary policy.

Low lending rates in the United States and other developed markets typically benefit high-yielding emerging market currencies like the rand that offer higher returns for the perceived higher risk.

But Powell’s remarks on inflation, a likely trigger for rate hikes, and still rising yields on US bonds, kept risk appetite subdued.

“Make no mistake, if US rates continue to rise and we see the offshoots of inflation, emerging markets are going to Pain City,” chief trader at Standard Bank, Warrick Butler, said in a note.

Bonds continued their diversion from the currency. The yield on the benchmark 2030 government issue added 10 basis overnight to 9.240%, it highest level since early November.