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The rand shows signs of strength as the Fed puts an interest rate hike on hold again

by , 19 June 2015

The rand has been under immense pressure this year and June has been no different for the local currency.

But following the release of a US Federal Reserve statement on Wednesday evening, the dollar gave up some of its gains as the central bank plans to keep rates unchanged for now.

Let's take a closer look at what's going on…

A weaker dollar helped the rand strengthen

Yesterday, the rand clawed back “more than 1% versus the dollar,” reports Fin24. This saw the local currency hit a three-week high.

This was thanks to the Fed deciding to postpone an increase in interest rates for the moment, adds Fin24.

As Bidvest Bank’s chief currency dealer, Ion de Vleeschauwer, explained, the Fed’s statement “disappointed a little,” says MoneyWeb. The rand is stronger on the back of a weaker dollar and “the current weak growth scenario in the US”.

As currency dealer at Iquad Group, Tony van Dyk, told BDLive, the rand has firmed “considerably against the dollar,” since hitting R12.45 on Wednesday. Following comments from Janet Yellen, the chairwomen of the Fed, many traders took profit on their “long dollar positions”.

Mr van Dyk expects the rand to consolidate “between R12.15 and R12.30” to the dollar, adds BDLive.

The dollar index has dipped to a low not seen in a month, notes Fin24. A fixed income analyst with RMB, Alexa Nicolau, said the Fed’s decision has been “a good thing for all risk assets”.

And this includes the rand.

But the future looks bleak for the rand

Yet in spite of some signs of hope for the local currency, which is down “more than 7% against the greenback” this year, it’s not likely to continue, adds MoneyWeb. Analysts at Nedbank point out that “local fundamentals remain poor”.

At time of writing, the rand was trading at R12.24 to the dollar, R13.91 to the euro and R19.43 to the pound.

So a slight reprieve for the local unit, but further strength may not be likely.

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The rand shows signs of strength as the Fed puts an interest rate hike on hold again
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