South Africa's rand firmer as U.S. Fed stance supports risk demand

  • Reuters
  • Forex News
South Africa's rand firmer as U.S. Fed stance supports risk demand
Credit: © Reuters.

JOHANNESBURG, May 14 (Reuters) - South Africa's rand firmed in early trade on Friday as global risk demand was aided by signs the United States central bank would keep lending rates low despite rising inflation.

A Federal Reserve official this week said the surprise jump in consumer inflation had not dented the bank's plans to keep its support for the economy. 0700 GMT the rand ZAR=D was 0.35% firmer at 14.0875 per dollar, compared to an overnight close of 14.1375.

The rand, which hit a 16-month high on Tuesday, has had a strong run since March, prompted by lower rates in the developed world, a surge in global commodity prices and signs the local economy is on track for a better-than-expected recovery.

But rising bonds yields in the United States have put a lid on those gains, while traders have pointed to seasonal factors that often see the rand lose ground to the dollar around this time of year.

"The question on most people's minds now I guess is, will this inflation spike be transitory as the Fed has suggested in just about every meeting/statement this year," Standard Bank (JO: SBKJ ) chief trader Warrick Butler said in a note.

"If so then ... the demand for high-yield should resume and if not, then there are going to be quite a few emerging market central banks sitting behind the curve and biting their nails to the cuticle."

In a poll by Reuters this week, all 25 of economists surveyed see South Africa's Reserve Bank (SARB) keeping its repo rate unchanged for a fifth straight meeting at a record low 3.5% next week. prices eased, with the yield on the benchmark 2030 paper ZAR2030= up 1 basis point at 9.17%

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