A five rand coin is displayed by a South African Reserve Bank worker in a file photo.
JOHANNESBURG (Reuters) – South Africa’s rand strengthened on Thursday after the chairman of the Federal Reserve set the stage for a U.S. interest rate cut later this month, weakening the dollar and boosting risk appetite worldwide.
At 0657 GMT, the rand traded at 13.9350 versus the dollar, up 0.3 percent from its previous close.
The yield on South Africa’s benchmark 2026 government bond dropped eight basis points to 8.030%, reflecting higher bond prices.
Fed Chair Jerome Powell said on Wednesday the Fed would “act as appropriate” to ensure the world’s biggest economy will be able to sustain a decade-long expansion.
Lower interest rates in the United States typically lift demand for higher-yielding assets in emerging markets like South Africa.
But economists also expect the South African Reserve Bank to cut its main lending rate at a monetary policy meeting next week, a Reuters poll showed on Thursday.
“Given the potential for rate cuts in South Africa, the benefits the rand may gain from the lower trajectory in U.S. interest rates may not be as telling as at first glance,” Warrick Butler, a senior trader at Standard Bank, wrote to clients.
“There is still the backdrop of a possible (credit rating) downgrade in November to contend with, coupled with the continued malaise at (state power firm) Eskom,” he said.
Reporting by Alexander Winning, editing by Larry King