Rand gains as new ECB stimulus lifts risk demand

The rand re-ignited its rally early on Friday, spurred on by the European Central Bank’s larger-than-expected increases of its stimulus programme, attracting investors looking for risk assets.

At 0650 GMT the rand was 0.38% firmer at 16.84 per dollar after an overnight close of 16.91.

The ECB increased its emergency bond purchase scheme by 600 billion euros, more than expected, to 1.35 trillion euros on Thursday, and extended the scheme to mid-2021, in the latest move by a global central bank to ease the economic blow of the coronavirus.

“The sheer size of the monetary and fiscal support measures out of the developed world in light of the coronavirus shock has driven a risk-on frenzy as a global search for yield has led to financial spillovers into the emerging market space,” said economists at ETM Analytics.

The rand’s rally to an 11-week best despite weak local economic data, as investors bet on a faster recovery of the global economy, stalled in the previous session as investors took profits and awaited jobs data from the United States due Friday.

“Technically, the 16.85 handle remains the line in the sand for the USD-ZAR, with the pair hovering around this level all morning. A sustained break below this level is likely to see a slide to 16.65,” ETM analysts said in a note. Bonds also rose, with the yield on the 10-year government issue down 2.5 basis points to 8.715%.