South African Rand Rallies as Weaker Dollar and Falling Treasury Yields Boost Emerging Markets

John Smith

PRETORIA – The South African rand jumped over 1% against the US dollar on Tuesday, as the greenback weakened and US Treasury yields declined. Improved risk appetite and upbeat local data on population growth also supported the rand.

The Currency Rallies Above 19 per Dollar

The rand traded at 19.0525 per dollar at 1508 GMT, gaining over 1.4% from its previous close. The dollar index, which measures the greenback against a basket of major currencies, slipped 0.1% lower.

The rand’s gains were primarily driven by broad-based dollar weakness, as markets scaled back expectations for US interest rate hikes. Dovish comments from Federal Reserve officials on Monday reinforced bets that monetary tightening may slow down or pause soon.

“The rand’s gains today come on the back of dollar weakness, improved market sentiment which has been aided by a drop in US Treasury yields at the beginning of the week and dovish comments from Federal Reserve officials yesterday,” said Danny Greeff, co-head of Africa at ETM Analytics.

US Treasury yields fell sharply on Monday and remained depressed on Tuesday, reducing the appeal of dollar-denominated assets. The benchmark 10-year yield declined to around 3.885% from over 4% last week. Lower yields tend to benefit higher-yielding but riskier currencies like the rand.

Emerging Market Currencies Also Advance

The rand’s gains mirrored strength in its emerging market peers, as hopes for less aggressive Fed policy boosted appetite for riskier assets. The Brazilian real, Mexican peso and Indonesian rupiah also posted strong gains versus the dollar.

“Markets are now less convinced about further monetary tightening required in the world’s biggest economy,” Greeff said, referring to the US.

The rand often takes cues from global drivers such as dollar flows, US yields and risk sentiment. But domestic factors like economic growth, inflation and fiscal policy also impact the currency.

Population Growth Accelerates

On the local data front, Statistics South Africa reported the country’s population grew to around 62 million in 2022 from 51.8 million in 2011. The 15% increase over the decade was higher than the previous 10.1% rise seen between 2001-2011.

“The census numbers show robust population growth compared to the last census. This points to the economy’s potential despite current challenges,” said Christie Viljoen, senior economist at PwC South Africa.

The higher-than-expected increase in population could boost consumer spending and provide a lift to GDP growth in the coming years, economists said.

JSE Rallies on Mining Stock Gains

On the stock market, the Johannesburg All-Share index closed up 1.9%, while the Top-40 blue-chip index rallied 3.26%.

Mining companies led the bourse higher, with Anglo American Platinum gaining over 8%, Gold Fields rising 5.7% and Kumba Iron Ore up 5.4%.

The resources sector has benefited from the weaker dollar and increased risk appetite lifting commodity prices.

Bond Yields Decline

In the bond market, yields on the benchmark 2030 government issue fell to 10.790%, down 14 basis points on the day.

The rally in the rand and weaker US yields bolstered demand for local debt. Foreign investors have been net buyers of South African bonds for the last seven weeks, providing support.

Rand to Stay Volatile on Global Uncertainty

Despite Tuesday’s strong performance, the rand is likely to remain volatile in the near term, analysts cautioned. Global recession worries, monetary policy shifts and geopolitical tensions continue to cloud the outlook.

“With a host of local and global risks still very much on the table, we expect the rand to remain on a bumpy ride in the coming months,” said FNB senior economist Khwezi Mabasa.

The South African Reserve Bank’s future policy path will also remain in focus, as it balances taming inflation with supporting fragile growth. Most economists expect at least another 50 basis points of hikes by year-end.

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John Smith is a veteran stock trader with over 10 years of experience in the financial markets. He is a widely followed market commentator known for his astute analysis and accurate predictions. John has authored multiple bestselling books explaining complex market concepts in simple terms for novice investors looking to grow their wealth through strategic trading and long-term investments.
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