South Africa‘s rand rallied in late trade on Tuesday after the government signalled it will give additional support to power firm Eskom and as emerging currencies were lifted by expectations the Federal Reserve could signal US rate cuts.
At 1400 GMT the rand was 1.76% firmer at 14.54 per dollar, after early in the day trading at around the 14.80 mark. It jumped late in the session as demand for emerging market assets was buoyed by the potential for policy easing by the US and European Union central banks.
The US Federal Reserve concludes a two-day meeting on Wednesday and is expected to lay the groundwork for a rate cut later this year.
On Tuesday the European Central Bank chief Mario Draghi said there would be more stimulus if inflation failed to pick up.
“Further dovish commentary from ECB Chair Draghi has pushed the rand to the top of the EM currency board this morning as the carry trade environment begins to lighten,” said currency analyst at Monex Europe Simon Harvey.
The rand tumbled to 15.17 on June 7, its worst level in 2019, following a 3.2% contraction to economic growth in the first quarter and a row between ruling African National Congress and government officials over the central bank’s mandate.
“Although investments in South Africa 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 party become more muted,” Harvey added.
News that President Cyril Ramaphosa will announce more measures to support cash-strapped power utility Eskom after meeting with the company’s board also aided the currency, traders said.
“The comments from Ramaphosa about additional support for Eskom have certainly boosted the rand. You saw stops triggered at 14.60 and a move lower in illiquid conditions against a weakening dollar,” said Oliver Alwar, a senior dealer at Standard Bank.
In February government pledged a R23 billion ($1.58 billion) a year bailout for Eskom over the next three years, but the firm has said it needs more cash to keep the lights on after nationwide power cuts earlier in the year.
Bonds also jumped, with the yield on the benchmark 10-year government bond falling 11 basis points to 8.27%, their lowest level since April 2018.
On the stock market, the Johannesburg Stock Exchange’s benchmark Top-40 Index advanced 1% to 52,692 points while the All-Share Index rose 0.9% to 58,723 points, as retailers and banks were boosted by the firmer currency.
Shoprite, Nedbank and Discovery led the blue-chip pack, all gaining more than 3% on the day, while the losers were led by commodity traders with Gold Fields plunging more than 6% and AngloGold Ashanti sliding 4%.