Rand pushes to five-month high, but may not hold on to gains

The rand joined other emerging-market currencies in cheering a dovish US Federal Reserve policy outlook, but huge headwinds persistThe rand pushed to a five-month high against the dollar on Thursday, lifted by news that dovish US Federal Reserve policy is on the way, as well as reports that the Public Investment Corporation had offered to convert R90bn of the debt owed to it by Eskom into equity.

Analysts warned, however, that a deteriorating local and global economic picture means that volatility for local assets should increase as the year proceeds. The rand also has little room for further gains.​ The local 10-year government bond due 2026 has also strengthened, with its yield falling below 8% in intraday trade on Thursday for the first time since April 2018. Bond yields move inversely to bond prices.

In testimony before US congress on Wednesday, US Federal Reserve chair Jerome Powell had struck a downbeat note regarding the performance of the US economy, helping to reinforce expectations of a interest rate cut at the Fed’s July meeting. According to Bloomberg, the market is pricing in a 100% chance of a cut at the meeting, which includes a 26.5% chance of a 50 basis point cut.

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