Rand falls as US Fed raises rate

Cape Town/Washington – The rand fell over 2% on Thursday morning as  the dollar was the chief beneficiary of the Federal Reserve’s first and only interest-rate hike of 2016, rallying to a 10-month high against the yen after officials signalled a steeper path for borrowing costs.

Asian stocks outside Japan also slipped with bonds. The greenback extended its advance against major and emerging-market peers, except for Australia’s dollar, which rose after stronger-than-expected job gains.

Japanese shares rose as the yen fell, while equities in Australia, China and Singapore slid and crude oil held losses. Government debt tracked a rout in Treasuries. The Korean won sank as much as 1.1%, even as the central bank held rates, and China’s yuan fell the most in a month.

The rand breached the R14/$ ceiling at 07:00, but strengthened to R13.94/$ by 08:45.  

The second US rate increase in a decade tied off a volatile 2016 for markets. The year opened with investors whipsawed by ructions in Chinese trading and Japanese monetary policy, followed by shock election wins for Brexit and Donald Trump.

The Fed moving further into tightening territory helps shift the focus away from global central-bank policy and toward fiscal stimulus, with Trump expected to stoke US growth through spending.

After hiking by 25 basis points, US policy makers expect three rate increases in 2017, up from the two seen in September. Still, Fed Chair Janet Yellen sought to downplay the significance of that shift at a presser after the decision.

“The fact that 11 of 17 voting members are calling for at least three rate hikes in 2017 reverberated around trading floors,” said Chris Weston, chief market strategist in Melbourne at IG. “Keep an eye on China as the strength of the dollar is not going to be welcomed by the Chinese corporates who have to borrow from debt markets to fund much of the recently announced acquisitions.”

Like Korea, Indonesia is projected to keep its key rate on hold in a policy review on Thursday. Singapore updates on retail sales and Sri Lanka reports on gross domestic product, while the Philippines issues figures on remittances from overseas workers.

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