Rand rallies as EU stimulus deal boosts risk demand

Rand rallies as EU stimulus deal boosts risk demand

The rand rallied more than 1% on Tuesday in a broad emerging market advance on perkier risk appetite after European Union leaders agreed a 750 billion-euro ($862 billion) fund to prop up their coronavirus-hit economies.

At 1530 GMT the rand was 1.01% firmer at R16.46 per dollar, its best level since June 10 in a risk-on rally led by Brazil’s real and the Russian rouble.

The EU deal was hailed as an important signal of unity by Europe’s leaders and a foundation for economic recovery.

The deal also provides fresh positive signals to investors beginning to doubt the speed of a bounce back in the global economy amid a sustained surge in coronavirus infections.

South Africa’s rand has recently been underpinned by a hunt for yield which has outweighed investors’ concerns about domestic economic fundamentals.

“The local backdrop is less than flattering, but less meaningful to the rand market for the moment, with much of the angst regarding growth and the fiscus priced into local currency bonds,” said Nema Ramkhelawan-Bhana, an economist at RMB.

The rand has struggled to break and hold below the key R16.50 resistance level, reflecting the tentative bull sentiment.

Analysts see Thursday’s monetary policy decision as the next cue for the rand. The Reserve Bank is seen cutting interest rates by 25 basis points as it wraps up an easing cycle, but a number of market participants see a chance of a hold.

The Johannesburg Stock Exchange (JSE) reflected the positive sentiment with the FTSE/JSE All Share Index rising 0.28% to end the day at 56,422 points while the FTSE/JSE Top 40 Companies Index ended up 0.32% to 52,017 points.

Bonds were also firmer, with the yield on the benchmark 2030 government issue down 15.5 basis points to 9.305%, its lowest in two weeks.

Credit: Moneyweb

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