Picture: REUTERS
Picture: REUTERS

The rand was mixed against major global currencies on Thursday afternoon, firming against the dollar while weakening against the euro and pound, as markets digest a dovish tone from the US Federal Reserve.

Expectations are now running high that global central banks will turn on the taps to re-ignite slowing economic growth.

“The case for somewhat more accommodative policy has strengthened,” Fed chair Jerome Powell said on Wednesday, adding to expectations for a rate cut in July and more cuts later in 2019.

LISTEN | The June 2019 Sona in 5 minutes

This has boosted risk assets, with the price of gold surging to a five-year high. Gold is a hedge against loose monetary policy, and the precious metal is a key foreign-exchange earner for SA.

At 2pm, the rand was 0.25% firmer at R14.2898/$, while weakening 0.52% to R16.1656/€, and 0.13% to R18.1352/£. The euro was 0.75% firmer at $1.1312.

Focus on Thursday is now on the state of the nation address (Sona), which will be closely watched for developments regarding debt at state-owned enterprises.

Risk to the rand remains, and SA is facing further credit-ratings downgrades should the government not ultimately present credible plans to boost the economy and deal with Eskom, said Christopher Shiells, a London-based emerging-markets analyst at Informa Global Markets.

“Given aggressive pricing of Fed rate hikes, there is now very little room for positive surprises on this front, and thus risks are to the downside for emerging-market currencies,” Shiells said.

Given that growth continues to slow in emerging markets and geopolitical risks remain, we are not certain the Fed can save emerging markets any more and thus the bull run for emerging-market currencies may not have much further to run.”

gernetzkyk@businesslive.co.za

Correction: June 20 2019
An earlier version of this story said the rand was at a two-month high to the dollar. It is in fact at a five-week high. We regret the error.