Rand falls victim to tighter Fed policy

THE rand lost further ground against the dollar on Thursday as traders continued to digest comments from the US Federal Reserve that indicated US interest rates would rise sooner than expected.

Fed chairwoman Janet Yellen tapered US monetary stimulus by a further $10bn last night as expected‚ bringing the bank’s monthly bond buying to $55bn. This is the third time the Fed has reduced its asset-purchase programme from the initial $85bn.

But her comments that the first interest rate hike could come six months after US quantitative easing (QE) ends‚ shocked markets and sparked a sharp sell-off in emerging-market currencies‚ sending the rand to R10.90 to the dollar from R10.70 where it traded for much of Wednesday’s session.

“This is a lot sooner and more explicit than the previous expectation that the hike would come at some vague time in 2015‚ or maybe even 2016‚” Rand Merchant Bank wrote in a note on Thursday.

Quantitative easing is expected to end in October or December‚ in the absence of any major upsets‚ which means the first rate hike could come as soon as March next year.

At 12.01pm‚ the rand was at R10.9130 to the dollar from Wednesday’s close of R10.8666.

Against the euro‚ the rand was at R15.0519 from its previous close of R15.0198 and was at R18.0432 to the pound from R17.9656 on Wednesday.

The euro was at $1.3794 from a previous close of $1.3817.

Absa Capital said Wednesday’s price action served as a reminder of how vulnerable the rand still was to the prospect of tighter US monetary policy due to South Africa’s large external funding requirements.

“If today’s weekly jobless claims data prove better than expected‚ then we think the rand is likely to continue losing ground into the local long weekend‚” the bank said. © BDlive 2014

 

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