The jury is out on how the US’s quantitative easing policy will affect other currencies.
The rand climbed to a five-week high against the dollar on Monday after Lawrence Summers withdrew his bid to become Federal Reserve chairperson. Bonds gained, driving benchmark yields to the lowest since July.
Summers would tighten Federal Reserve policy more than Janet Yellen, who was his main rival to replace Ben Bernanke, according to a Bloomberg Global Poll last week.
South Africa’s inflation rate probably increased in August, staying above the central bank’s target for a second month, a report may show on Wednesday.
“There is very strong global risk appetite after the announcement that Summers is no longer running,” Mohammed Nalla, head of strategic research at Nedbank Group, said. The rand may extend gains, targeting 9.65 per dollar after breaching key technical levels, he said.
South Africa’s currency appreciated as much as 1.8% to 9.74 per dollar, the strongest level since August 9. It traded 1.6% stronger at 9.77 as of 12.05pm in Johannesburg on Monday. Yields on benchmark 10.5% bonds due December 2026 dropped eight basis points, or 0.08 percentage points, to 8.07%, the lowest on a closing basis since July 24.
Riskier assets
The dollar declined against 15 of the 16 most-traded currencies and emerging-market stocks rose to a three-month high. More than $47-billion left global funds investing in emerging-market bonds and stocks from May through August amid concern that reduced Federal Reserve stimulus would erode demand for riskier assets.
Federal Reserve policy makers are meeting on September 18. South Africa’s inflation rate probably rose to 6.4% in August from 6.3% the month before, according to the median estimate of 21 economists in a Bloomberg survey.
Rising inflation is limiting the South African Reserve Bank’s room to stimulate the economy. The central bank will leave its key repurchase rate unchanged at 5% on September 19, according to all 18 economists surveyed. – Bloomberg