The South African rand was sharply firmer against the dollar in early trade on Friday after a slide in the dollar following the United States federal open market committee’s (FOMC) decision to increase interest rates on Thursday night.
Traders said it was not the decision to hike rates itself but rather the tone of the accompanying FOMC statement that suggested a lesser chance of further increases in US rates, which had caused the dollar to fall.
At 8.26am, the rand was bid at R7,1153 per dollar from an overnight close of R7,1113 and R7,3470 at its intraday worst level on Thursday.
It was bid at R9,0340 to the euro from a previous R9,0267 and at R13,0370 against sterling from a previous R12,9854.
The euro was bid at $1,2705 from $1,2663 overnight, while gold was quoted at $601,60 a troy ounce from a previous $598,45/oz.
“There has been a big move of around 20 cents on the rand overnight. We needed something like this to get it through R7,20. How much of it is overdone, we will have to wait and see,” said a local currency trader.
He added that the dollar would be the major factor in the rand’s direction on Friday.
“We are looking at a slightly lower range for the rand — between R7,08 and R7,18,” he added.
AFX reports that the dollar was lower against other major currencies in early-afternoon trading in Tokyo after the Federal Reserve released overnight a statement interpreted as lessening the chances of further increases in US interest rates, dealers said.
After increasing the federal funds rate by 25 basis points, as expected, the FOMC made a statement perceived as less hawkish in tone than its previous one, dealers said.
“Although the latest FOMC statement did not rule out the prospect of further rate hikes, the market, which had gone too long on the dollar on expectations for a more hawkish statement, rushed to unload massive long positions on the greenback,” said Mizuho Corporate Bank dealer Tatsuro Karitani.
The euro surged on expectations that the difference between interest rates in the US and the euro zone will shrink, dealers said.
“The euro now seems to have come to a key turning point where it will either form a new trading range of $1,27 to $1,29, or remain in the $1,25-to-$1,27 range,” Karitani said. — I-Net Bridge