Rand leads emerging-market gains on encouraging political news
The South African rand rallied on optimism that efforts to create a broad coalition government were on track, leading its emerging-market peers higher amid a broad risk-on session.
The rand is up 1.7% against the dollar, its biggest gain this year, on news that political parties were close to wrapping talks on a new ruling alliance. The Mexican peso also strengthened, by 0.8%, after the central bank signaled that policy will remain restrictive even as space for more interest rate cuts may be appearing.
Earlier Friday, strategists at Bank of America Corp. closed their bearish trade recommendation for the rand as they anticipate a coalition administration will be formed by the African National Congress — which lost its parliamentary majority in May elections — and the centrist Democratic Alliance.
“On confirmation of the cabinet announcement, we expect further gains in South African assets, broadly,” said Razia Khan, chief economist for Standard Chartered Bank.
MSCI’s emerging-market currencies index held onto a 0.3% gain after Friday’s core personal consumption expenditures price index in the US slowed to an annualized rate of 2.6% last month from 2.8%, the lowest reading since March 2021 and in line with expectations. Though it remains above the Fed’s goal for 2% inflation, the data offers welcome news for Federal Reserve officials seeking to commence with rate cuts in the coming months.
A gauge of emerging-market equities also maintained gains of 0.5%, heading for the largest monthly gain since February. Developing stocks are on track for the best first-half period since 2021.
Across the developing world, currencies and domestic bonds have suffered in recent months after a series of surprising election outcomes sparked investment outflows into safer assets. Looming ballots in some of the world’s major economies — in France this weekend, the UK next week and the November presidential contest in the US — are likely to shape investors’ risk perception and drive capital flows in the second half.
Traders also sought to gauge the implications of Thursday’s US presidential debate — and the impact of former president Donald Trump’s potential return to the White House on the economy and the dollar.
In India, government bonds were poised to attract billions of dollars in new inflows after their inclusion in the JPMorgan Chase & Co.’s emerging market index, which will open a $1.3 trillion market to a broader range of investors.
