Rand Gains Most Among Global Currencies After Yellen's Comments

  • Fed chair's remarks spark gains across emerging-market assets
  • Stocks advance and bond yields decline to lowest since March 7

South Africa’s rand gained the most against the dollar among global currencies and headed for its first quarterly gain since 2012 as dovish comments from Federal Reserve Chair Janet Yellen sparked a shift toward riskier assets.

The currency advanced as much as 2.4 percent to the strongest level on a closing basis since Dec. 8, a day before President Jacob Zuma fired his then finance minister, Nhlanhla Nene, sending the rand tumbling. Local stocks ended 1.4 percent higher, the biggest gain in more than two weeks, while yields on government rand-denominated debt due in 2026 fell 19 basis points to 9.16 percent, the lowest since March 17.

The rand’s gains on Wednesday, the best among 31 major and emerging-market currencies tracked by Bloomberg, cut bets the South Africa Reserve Bank will raise borrowing costs to slow price growth and meet its inflation target. Further appreciation may be limited and the rand is unlikely to be able to sustain current levels, said Ion de Vleeschauwer, chief dealer at Bidvest Bank.

“I think it’s just a short-term phenomenon that we’re seeing here,” De Vleeschauwer said. “I just don’t think fundamentally we justify such a strong currency. Locally, there’s just too much negativity still and too much uncertainty about our economic condition for the rand to rally that much. For that to happen, you need to have a dollar that continues to weaken significantly.”

A measure of emerging-market currencies headed for the best month since 1998 on optimism capital inflows can be sustained after Yellen on Tuesday said U.S. policy makers must act “cautiously” as they look to raise rates. Diminishing prospects for a first-half Fed rate increase sent the Bloomberg Dollar Spot Index toward the lowest since June.

Rally Boosted

The South African unit extended gains in late afternoon trade in Johannesburg as Finance Minster Pravin Gordhan said he would cooperate with a police investigation into an alleged rogue unit set up within the revenue service when he was in change, easing fears of a confrontation. Gordhan was given a deadline by the police’s Hawks unit to answer questions by Wednesday. In a statement, he said the revenue unit was legal and that he was responding to the police in the public interest, even though he was not legally obliged to do so.

The currency’s advance against dollar took its gain since the start of the year to 4 percent, with the unit set for its first positive quarter since March 2012. Against the pound, the rand rallied 2 percent to 21.4323, its strongest level since Feb. 23 on a closing basis.

The unit, which had been on course for a quarterly decline of 0.1 percent against the dollar prior to Yellen’s remarks, was 2 percent stronger at 14.8730 as of 5:34 p.m. in Johannesburg. Traders have trimmed expectations the central bank will increase the benchmark rate to 7.25 percent at its next meeting in May after policy makers raised it to 7 percent at its last meeting on March 17.

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