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South Africa’s rand firms as Democrat U.S. Senate win boosts risk sentiment

PUBLISHED: Thu, 07 Jan 2021 07:16:23 GMT

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JOHANNESBURG, Jan 7 (Reuters) – The South African rand firmed in early Thursday trade against a dollar, which languished near its lowest in nearly three years, after Democrats won control of the U.S. Senate, clearing the way for a larger fiscal stimulus and boosting risk sentiment.

Analysts generally assume a Democrat-controlled Senate will be a net positive for economic growth globally and thus for most risk assets, but negative for bonds and the dollar as the U.S. budget and trade deficits may widen further.

At 0640 GMT, the rand was 0.15% stronger at 15.0575 against the dollar from an overnight close of 15.0800.

“Stimulus-driven reflation trades are back on,” said Stephen Innes, Chief Global Market Strategist at Axi.

“The most optimistic take is that a razor-thin effective Senate majority curbs tax hikes … leaving markets to focus on higher spending that would be consistent with a U.S. Treasury curve bear steepening, an ongoing rally in industrial metals, a rally in Emerging Market equities, and a weaker U.S. dollar.”

Gains in the rand, however, were capped by record local numbers of COVID-19 infections and deaths in the last 24 hours, with cases rising by 21,832 and deaths by 844.

This raised speculation about stricter lockdown measures that would exacerbate an already bleak economic outlook.

Government bonds also firmed, with the yield on the benchmark 2030 bond down 2 basis point at 8.665%. (Reporting by Nqobile Dludla. Ediitng by Mark Potter)

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