South African markets ended the day on a positive footing yesterday amid a weak US dollar as investors braced for the latest policy decision by the US Federal Reserve (Fed) while fears of a recession still lingered.
The rand strengthened by 0.7% to R18.26 against the US dollar after recovering from R18.49/$1 on Tuesday as the bleak jobs data from the US put the dollar on the back foot.
Data on Tuesday pointed to a slowing in the US labour market as the jobs report fell for a third straight month and hit a two-year low, down to 9.59 million vacancies from an upward revised 9.97 million in February, the lowest since April 2021.
This suggested that employers were becoming more cautious amid heightened economic uncertainties.
The dollar eased yesterday, extending losses from the previous session as weaker-than-expected jobs data, concerns over the debt ceiling and banking sector risks piled on fears that the US economy could be headed for a recession.
The market concerns about the US banking system and the US debt repayments weighed on the dollar following the collapse of First Republic Bank and its subsequent takeover by JPMorgan, the second-largest bank failure in US history.
TreasuryONE currency specialist Andre Cilliers said the rand had been buoyed by the risk-off sentiment plus the weaker dollar.
“The rand has had the double whammy of risk-off fears in the market plus a weaker US dollar to contend with at the moment,” Cilliers said.
“The rand briefly touched the R18.50 level against the US dollar, and if it was not for the later weakness in the US dollar, we could have closed well above the mark.”
Meanwhile, stocks on the JSE rose as the risk-off sentiment dissipated in anticipation of the Fed policy decision, with the Fed’s interest rate announcement poised to set the tone for markets globally.
The All Share index closed 0.8% stronger at 78 115 points yesterday, driven higher by mining stocks, especially gold miners.
Gold prices held around $2 016 (R36 992) an ounce after jumping nearly 2% on Tuesday as growing recession fears and persistent concerns over the banking sector lifted safe-haven assets.
Investors are expecting the US Federal Open Market Committee (FOMC) to deliver a 25 basis-point interest-rate increase and a signal to pause its aggressive hiking campaign.
The decision has already been baked into the market, but analysts remain divided on whether the central bank would keep borrowing costs elevated for the remainder of the year or start cutting rates in the second half.
Investec chief economist Annabel Bishop said the market was confident that the hiking cycle was at its end in the US, hence the strength in the rand.
“The rand has seen some reaction ahead of the FOMC meeting tonight, in anticipation that the terminal rate will be reached, while the US ten-year bond yield has seen some gains as well, with its yield dropping from 3.57% to below 3.40%,” Bishop said.
“While the Fed is expected to signal tonight’s US rate hike is the terminal (highest) rate in the cycle, markets will be watching very closely to see if it’s signalled as a pause, or the actual end rate, with the latter decidedly more positive for bonds and the rand.”
BUSINESS REPORT