The rand was firmer against major global currencies on Tuesday afternoon, at its best level in two-weeks against the dollar, bolstered by signs of dovishness from the European Central Bank (ECB).

ECB president Mario Draghi said it stood ready to lower interest rates should inflation not pick up in the eurozone, with the rand firming the most among its emerging-market peers.

This boosted risk assets, although Draghi didn’t elaborate on when easing would take place. Looser monetary policy in Europe will increase interest in the rand, as investors will search for higher-yielding assets elsewhere, such as in SA government bonds.

At 2pm, the rand had firmed 1.12% to R14.6422/$, 1.32% to R16.3913/€, and 1.25% to R18.3274/£. The euro had weakened 0.21% to $1.1194.

The bid on the benchmark R186 government bond had fallen 7.5 basis points to 8.28% — its best level in a year. Bond yields move inversely to bond prices.

The rand was benefiting disproportionately on Tuesday as expectations are that the SA Reserve Bank may not be as aggressive in loosening monetary policy than its emerging-market peers, said Monex Europe forex market analyst Simon Harvey.

Market focus this week is on the US Federal Reserve’s interest rate decision on Wednesday, with markets expecting the Fed to signal it is also prepared to lower rates. According to Bloomberg, markets are only predicting a 26.1% chance of a 25-basis-point cut on Wednesday, although this rises to 83% for the next meeting in August.

Even though the Fed was not expected to meet market expectations in terms of cutting rates, hints of dovish policy should be sufficient to boost the rand a little, said Harvey.

Local focus will remain on Thursday’s state of the nation (Sona) address. “Although investments in SA continue to carry substantial idiosyncratic risk, for now the climate looks to be much more favourable as the woes of Eskom and divisions in the ANC become more muted.”