Rand rallies as investors see value after deep fall

The rand rallied to its firmest in more than a week on Thursday, breaking through the key 18.00 mark as increased bets of the currency returning to fair value and a new $2.3 trillion stimulus by the US central bank spurred demand.

At 1500 GMT the rand was 1.62% firmer at 17.89 per dollar, its best level since April 1 and well below the 18.00/$ technical mark that stands to open up further gains.

The greenback sank after the Federal Reserve rolled out a $2.3 trillion plan aimed at taming growing unemployment, prompting a further unwinding of long dollar positions, with money chasing higher yields elsewhere benefiting riskier currencies

The rand, after tumbling to an all-time low of 19.34 following two credit rating downgrades in quick succession, has clawed back ground in the last few sessions in line with other emerging market currencies.

Read: Rand recovers after record low

But it has also benefited from hitting over-sold levels much quicker than its peers, as Moody’s finally pushed the country’s debt rating to “junk” at the end of March, removing the uncertainty that had clouded valuations for close to three years.

Analysts see the rand moving closer to fair-value of around 15.50 by year end.

“We’re growing in confidence that for the first time this year many of the negative events that rocked the global and domestic economies are largely priced into the currency and that the rand has reached the broad top of our forecast,” said Nedbank strategist Walter de Wet.

“We expected substantial rand weakness into mid-year, which has transpired faster than we had expected. At the same time, we forecast a recovery in the rand below 15.00,” de Wet said.

In fixed income, the yield on the 10-year government bond due in 2030 was down 16.5 basis points to 10.810%.

The Johannesburg Stock Exchange’s Top-40 index climbed 2.41% to close at 43 802 points while the All-Share index rose 2.7% to close at 47 950 points.

The rally was driven by the country’s banks and mining companies. The FTSE/JSE bank index was up by 7.15% while the resources index was up 3.54% by the end of trading.