Rand rallies on weakened dollar, high precious metal prices, steady US rates
JOHANNESBURG – The rand rallied 0.6 percent on Thursday on the back of the weakened dollar and high precious metal prices after the US Federal Reserve kept interest rates unchanged.
The rand made significant gains and closed the market at R14.58/$ after opening trade at R14.69/$.
On Wednesday, the Fed held rates during the Federal Open Market Committee (FOMC) meeting as expected.
The Fed said this was based on the current state of the US economy as well as persistently low inflation, and that there would be no rate changes in 2020.
Senior dealer at TreasuryONE Andre Botha said Wall Street had closed the day marginally in positive territory and futures had opened higher. Botha said, however, the emerging market currencies had recovered as the dollar and the pound weakened overnight as markets braced for UK election results.
“The dollar weakened on the doveish tone. The pound could be in for a roller-coaster ride as exit polls come out during today’s UK general election,” Botha said.
“The rand, along with other emerging market currencies, has recovered post the FOMC decision. We expect the rand to trade in a 14.60/14.75-to-the-dollar range for today.”
Gold moderated 0.53 percent on the back of the softer dollar at $1 467.04 (R21 634.2). Palladium was in new record territory at $1 918, while platinum was up at $941.75.
Meanwhile, the producer price index (PPI) inflation decelerated for the seventh consecutive month to 2.3 percent year-on-year in November from 3 percent in October.
The PPI calculates and represents the average movement in selling prices from domestic production over time. Statistics South Africa said the moderation was mainly driven by receding contributions from the coke, petroleum, chemical, rubber and plastic products category.
The other key contributor to the easing in manufacturing industry prices has been disinflation in manufactured food.
Manufactured food price inflation peaked at 6.1 percent year-on-year in July and has steadily declined to 3.4 percent in November.
Maize prices have declined modestly since July, resulting in slower inflation at the agriculture level that has translated to lower inflation at the manufactured level.
Investec economist Lara Hodes said the selling prices had remained weak in the period.
“The deceleration in PPI inflation is also reflective of weaker pricing power along the supply chain amid the subdued demand conditions,” she said.