Picture: REUTERS
Picture: REUTERS

The rand strengthened to below R14 to the dollar for the first time in more than two months on Wednesday, setting the stage for a potential cut in fuel prices in December.

The stronger currency comes as oil prices have moderated, after touching a four-year high in early October.

The developments will help ease worries on the inflation outlook, thus taking pressure off the Reserve Bank, which has previously cited the rand as a key risk to inflation.

The results from the US midterm elections appeared to favour risk assets at the expense of the dollar, which was weaker against virtually against every other currency.

As predicted, the Democrats were on course to secure control of the House of Representatives while the Republications looked set to retain the Senate.

Regarded as the proxy of sentiment towards emerging markets, the rand gained as much as 0.85% to R13.89 to the dollar, its best level since August 10, according to the Iress data.

Image: Iress

Local bonds were just as strong, with the yield on the benchmark R186 bond dipping to 9.095%, from 9.13% at its last settlement.

The outcome of the elections shifts the balance of power in the US Congress, which analysts say will make it harder for President Donald Trump to push through his agenda in the coming months.

“The threat of the Blue Tsunami has officially receded as the GOP [Republicans] will hold the Senate, but nonetheless we need to keep things in perspective in the sense this is only 2018 and not 2020 so time to curb one’s expectations," Oanda analyst Stephen Innes said.

“Volumes have been high, and equities remain supported, suggesting this outcome is positive for risk since the gridlock outcome ultimately will support the president’s mandate and a higher probability of more fiscal stimulus.”

At 10.42am, the rand was 0.85% firmer against the dollar at R13.9895, 0.50% stronger against the euro at R16.0425 and 0.54% stronger against the pound at R18.3916. The euro was 0.35% better at $1.1437.

Brent crude was at $71.93 a barrel in early trade, its lowest level since August 20, according to Iress data.

The relatively stronger rand environment and lower oil prices bode well for the outlook on inflation, which held steady at an annual pace of 4.9% in September.

While prices are still within the Bank's target range of 3%-6%, they still fall outside the central bank's preferred mid-point of 4.5%