The rand reached its best level in just over a month against the euro on Thursday after the European Central Bank (ECB) opted to cut its interest rate and introduce stimulus efforts.
On Thursday, the ECB cut the interest rate on the deposit facility by 10 basis points to -0.50% and said it would restart quantitative easing at a monthly pace of €20bn as of November 1.
The central bank said it expected key interest rates to remain at their present levels or lower “until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below 2%, within its projection horizon”.
Stimulus in developed markets boosts the rand by maintaining or increasing the yield advantage of holding SA assets, while local producers get more for their exports when the rand firms as the country is a commodities exporter.
“The more major central banks like the ECB start cutting their rates and weakening their currencies, the more the commodity-based destinations like SA become attractive for foreign investors,” Sanlam Private Wealth portfolio manager Nick Kunze said.
The US Federal Reserve is expected to give its decision on interest rates next week, facing pressure by US President Donald Trump and markets to loosen monetary policy amid fears of an economic slowdown.
The SA Reserve Bank is set to announce its interest-rate decision on September 19, after cutting the repo rate 25 basis points to 6.5% in July.
“Our monetary policy committee is traditionally very hawkish, with a reputation of being quite prudent. If they want to give the SA economy a little kick start, cutting by 50 basis points would not be unexpected, but at the moment the forecast is for the repo rate to remain unchanged,” Kunze said.
At 3.40pm, the rand had firmed 0.59% to R16.0695/€, 0.36% to R14.6273/$ and 0.4% to R18.028/£. The euro had weakened 0.22% to $1.0986.
The benchmark R186 government bond was stronger, with the yield falling 7.5 basis points or 0.075 percentage points to 8.08%. Bond prices move inversely to bond yields.
Gold was up 1.08% to $1,512.81/oz and platinum 0.7% to $950.39/oz. Brent crude lost 2.74% to $59.36 a barrel.
Mining production increased by 2.4% year on year in July, from a contraction of 4.2% in June, data from Statistics SA showed on Thursday. This is above analysts’ expectations of an increase of 1%, according to a Bloomberg consensus.