Rand weakens for the second day before Federal Reserve stimulus decision

The rand declined for a second day against the dollar as traders debated whether the Federal Reserve will today announce a reduction in US monetary stimulus that helped drive investment to South African bonds.

The central bank in the world’s biggest economy may begin cutting its $85-billion of monthly bond purchases this week, according to 34% of economists in a December 6 Bloomberg survey, up from 17% in a November 8 poll.

The South African Reserve Bank’s Leading Indicator, which predicts the direction of the economy’s movements in the coming months, rose to 100.9 in October from a revised 100.6 the previous month.

"The focus of the markets is now firmly on the outcome of the Fed meeting", Mohammed Nalla, head of strategic research at Nedbank Group in Johannesburg, said in e-mailed comments. "The only apparent certainty in that regard is the uncertainty and the inevitably volatile price action around that event."

The rand weakened 0.3% to 10.3556 per dollar by 9:41 am on Wednesday in Johannesburg. Yields on benchmark bonds due December 2026 dropped one basis point, or 0.01 percentage point, to 8.21%.

Foreign investors bought a net R335-million of South African bonds and sold R520-million of equities yesterday, according to JSE Ltd. data. – Bloomberg

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