South Africa’s Rand Leads Emerging-Market Gains Against Dollar on Stimulus Bets

South Africa, Capital Markets in Africa: South Africa’s rand strengthened to a 11-week high against the dollar as prospects for stimulus in major economies boosted demand for riskier assets. The currency weakened against the pound as an expected immediate U.K. rate cut failed to materialize.

The currency jumped 1.7 percent to 14.2423 against the dollar by 1:58 p.m. in Johannesburg, set for the strongest close since April 29 and leading gains among 24 emerging-market currencies tracked by Bloomberg. The rand was little changed against the pound after weakening as the Bank of England left its key interest rate at a record low and signalled its readying stimulus for August. Investors had priced in a more than 80 percent chance of a cut Thursday.

Speculation that central banks will boost stimulus has added more than $4 trillion to the value of equities worldwide since June 27. Most policy makers at the British central bank expect monetary policy to be loosened next month, the minutes of their Wednesday meeting show. A key adviser to Prime Minister Shinzo Abe said former Fed Chairman Ben Bernanke had floated the idea of perpetual bonds to stimulate Japan’s economy. Investors see about a 5 percent probability of a rate increase at the Federal Reserve’s July meeting.

“You’ve got rather dovish expectations around the Fed; you’ve also got quite lofty expectations in the market around central bank intervention from the BOE today and also fairly lofty expectations around the BOJ,” Mohammed Nalla, head of strategic research at Nedbank in Johannesburg, said by phone before the Bank of England’s decision. “Everyone assumes that if the central banks are going to be priming the pump, so to speak, that’s going to entrench this global search for yield.”

Johannesburg’s benchmark stock exchange was 0.1 percent higher, after earlier advancing as much as 0.4 percent. Yields on benchmark South African bonds dropped 8 basis points to 8.64 percent, after being as low as 8.62 percent.

“The market’s expectation around central banks is exceptionally dovish and as a result, we could be susceptible to a little bit of disappointment in the event that central banks don’t deliver as much as the market’s currently pricing in,” Nalla said.

Nigeria is still Africa’s number one economy, even after a 30 percent devaluation of the naira last month knocked almost $150 billion off its gross domestic product when measured in dollar terms. South Africa, which has regained second place after overtaking Egypt, is closing the gap. While its economy also shrank as the rand weakened, the gap with Nigeria has narrowed to $60 billion now from $170 billion at the end of 2015.

Source: Bloomberg Business News