Rand rises against subdued dollar after Fed holds rates

JOHANNESBURG – THE RAND rose at a more than one-week high against the greenback yesterday amid a subdued dollar after the US Federal Reserve held interest rates unchanged at near zero.

The Fed was steadfast in its attempt to achieve the Federal Open Market Committee’s target of maximum employment and inflation at the rate of 2 percent over the long term.

The rand peaked at R14.15 against the dollar during intraday trade yesterday, its highest level on a closing basis since 19 April, before closing 1 cent stronger to the dollar at R14.29 by 5pm.

The dollar was put under further pressure by US President Joe Biden’s proposed spending plans which raised fears over the US budget and trade deficits. The rand has gained a lot of ground against the dollar over the past 12 months.

FXTM’s Hussein Sayed said the dollar remained the most unloved currency for the month falling to a nine-week low early today. The reflation trade is clearly ongoing bolstered by extremely loose monetary policy, and with another $1.8 trillion in spending announced by Biden, the budget deficit has only one way to go, and that’s up.

“However, the US remains the best performing developed economy and this will be reflected in today’s gross domestic production report.”

The JSE All Share Index also traded higher at 68 188 index points in early trade before closing at 0.51 percent higher to 67 392.73 points. Gains were led by the financial sector as the US Fed maintained a dovish stance and painted a rosy picture of the US economic outlook. O

n top of a $1.8 trillion (R25.8trln) stimulus, the US is considering another $3trln with investments into the economy and a focus on the green economy. These massive stimulus and rebounding markets have given cause for optimism, but also pushed inflationary pressures high.

Investec chief economist Annabel Bishop said the Fed presented a sanguine view on inflation and a positive view on the US economic recovery. Bishop said the SA Reserve Bank might also choose to ignore the upcoming sharp acceleration in consumer inflation though a 25 basis points rise in the repo rate this year would do little to derail economic growth.

“However, given the extreme fragility of South Africa’s recovery, as many businesses and jobs have been lost, sentiment is key too,” Bishop said.

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Source: iol.co.za