Rand's Tiring Rally Gets Lease of Life as Fed Validates Bulls

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  • South African currency rises to highest since August 2015
  • Stocks, bonds also gain as Fed signals policy accommodation

Yellen's Rate Hike Press Conference in Two Minutes

Bears are running for cover in South Africa.

The rand headed for a 19-month high Thursday, with options traders turning the most bullish since August 2015, and stocks rose the most this year. Traders called it a “relief rally,” meaning their fears of an aggressive rate-increase path in the U.S. have been allayed by the Federal Reserve’s dovish stance Wednesday.

Aside from the Seychelles rupee, the rand advanced the most among more than 150 currencies in the world on Wednesday after Fed Chair Janet Yellen said the latest rate increase didn’t imply a shift to aggressive monetary tightening. That was a turnaround for a currency that had slipped below its 50-day moving average last week and developed a bearish “head-and-shoulders” technical pattern amid Fed tightening bets and domestic political tensions.

“Everyone was expecting this hike, but the market probably was expecting more of an aggressive stance,” said Wayne McCurrie, the head of portfolio management at Ashburton Investments in Johannesburg. The relatively dovish statement “pushed the dollar down which has pushed the rand and commodity prices up.”

While the U.S. central bank raised its benchmark rate by a quarter-percentage point, Yellen sought to reassure investors that monetary policy will remain accommodative for some time. The rand jumped 2.9 percent after the statement.

  • The rand extended gains Thursday, advancing 0.3 percent to 12.7568 per dollar.
  • The FTSE/JSE All Share Index rose 1.8 percent.
  • One-year interest-rate swaps dropped by the most since Jan. 20, meaning that traders expect financing costs to fall.
  • The yield on 10-year government rand bonds fell 12 basis points, the biggest drop since November, to 8.54 percent, the lowest level in almost six months.
  • One-month expected volatility on the rand, derived from options prices, dropped for a fifth day.
  • A gauge of expected price swings in the 40 biggest stocks in Johannesburg slid 5.8 percent on Wednesday.