Rand weakens on signs US Fed gains were overdone

The rand depreciated for the first time this week as investors gauged that a surge to a four-month high against the dollar, after the US Federal Reserve unexpectedly maintained monetary stimulus was overdone. 

Bonds gained.

The rand rallied with stocks and commodities after the Federal Open Market Committee (FOMC) yesterday said it wants more evidence of an economic recovery before paring its $85-billion-a-month bond-buying program, surprising analysts who predicted a $5-billion cut to treasury purchases.

South Africa’s central bank will leave its key policy rate unchanged today, according to all 20 analysts in a Bloomberg survey. "Fed tapering has been delayed and not canceled," said John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg.

"While the Fed’s decision is great for emerging markets in the short term, there is also an unfortunate consequence. The uncertainty remains, and so too will volatility."

South Africa’s currency depreciated 0.4% to 9.6236 per dollar as of 10.08am in Johannesburg after strengthening as much as 0.4% earlier to 9.5484, the strongest level since May 24. Yields on benchmark 10.5% rand-denominated bonds due December 2026 fell 29 basis points, or 0.29 percentage point, to 7.87%, the lowest on a closing basis since July 22.

The FOMC decision came after trading ended in South Africa’s bond market yesterday. US Fed chairperson Ben S Bernanke said there is no fixed schedule for tapering and it could still start this year should data confirm the central bank’s "basic outlook". The US will post jobless claims and home-sales data today.

Economists had forecast the FOMC would reduce monthly treasury purchases to $40-billion from $45-billion and keep buying of mortgage-backed securities at $40-billion, according the median of estimates compiled by Bloomberg.

The rand’s 6.8% advance this month took the stochastic oscillator to 10.2, further below the 30 level that indicates the currency is overbought may be poised to retreat. The measure, which tracks the price of a currency relative to its highs and lows during a particular period, has been below 30 since September. 16. – Bloomberg

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