Rand fails to hold on to its gains against a bullish US dollar

THE RAND YESTERDAY failed to hold on to gains following the prudent Budget Speech after hopes of strengthening were dashed by the US monetary policymakers maintaining a cautious stance on the interest rate outlook.

The domestic currency had strengthened to R18.77 to the dollar on the better-than-expected Budget, but then moved closer to R19/$1 by 1pm following the release of the US Federal Open Market Committee (FOMC) minutes on the back of strengthening the dollar as interest rate cuts were not imminent.

The latest minutes of the FOMC meeting released yesterday revealed that the Federal Reserve (Fed) was not in a rush to cut rates, but wanted to see more evidence inflation was firmly on a path to its 2% target before lowering rates.

The majority of officials at the Fed’s most recent meeting were concerned about the consequences of cutting interest rates too soon, with broad uncertainty about how long borrowing costs should remain at their current levels.

The committee also noted that rates could be reduced later this year after there was more confidence that inflation will fall, but for the time being, they will remain data-dependent and leave rates steady.

While the Budget speech provided no surprises other than the use of the R150 billion from the contingency reserve to reduce debt, the market reaction was largely positive with the 10-year SA Treasury yield moving lower and the rand firming slightly.

The JSE All Share index was also slightly up around 73 600 points yesterday, the second consecutive session of gains as traders continued to digest the Budget speech.

However, TreasuryONE currency strategist Andre Cilliers said the markets had taken the slightly hawkish position in stride, with the dollar little altered following the publication of the FOMC minutes.