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South Africa's rand firms on Powell's remarks, Kganyago reappointment

JOHANNESBURG (Reuters) – South Africa’s rand firmed on Wednesday as the dollar weakened after U.S. Federal Reserve Chairman Jerome Powell highlighted risks to the U.S. economy in remarks that could bolster expectations of an interest rate cut later this month.

People walk near the reception at the Johannesburg Stock Exchange (JSE) in Sandton, Johannesburg, South Africa December 10, 2015. REUTERS/Siphiwe Sibeko

The rand was also boosted by news that President Cyril Ramaphosa has re-appointed South African Reserve Bank Governor Lesetja Kganyago for another five-year term.

At 1530 GMT the rand was 0.95% firmer at 14.0525 per dollar.

In prepared remarks to a congressional committee, Powell said concerns about trade policy and a weak global economy “continue to weigh on the U.S. economic outlook” and the Fed stood ready to “act as appropriate” to sustain a decade-long expansion.

“Federal Reserve Chairman Jerome Powell’s testimony to the US Congress is surprisingly more dovish than markets were expecting, given the US jobs data,” Bianca Botes, Treasury partner at Peregrine Treasury Solutions, said in a note.

“The local unit is now likely to retest the R14.00 mark as the dollar comes under renewed pressure.”

Emerging markets have enjoyed capital inflows this year on signs major central banks will embrace a looser monetary policy as a result of trade disputes and growth concerns.

However, strong U.S. jobs data on Friday all but ended expectations of a bold interest rate cut from the Fed at its meeting this month, leaving investors in search of hints on where rates are headed.

On the bourse, the benchmark Johannesburg Stock Exchange Top-40 Index was up 1.15% to 51,491.95 points while the broader All-Share Index closed 1.11% higher at 57,597.87 points.

“We have seen in the last while, in the local stocks in particular banks, retailers, and some selected industrials under pressure and so we are seeing a bit of recovery now on the back of [Fed rate cut commentary],” said Ferdi Heyneke, Afrifocus Securities portfolio manager.

Mining company Goldfields was at the top of the blue-chip index, rising by 5.06% to 77.05 rand, while pharmaceuticals Aspen closed 3.50% higher at 105 rand. Retailer Clicks was up 2.76% to 209.24 rand.

Dragging down further gains was steel producer Arcelormittal, which fell nearly 16% to 2.91 rand after plunging to a first-half loss due to rising costs and a flagging economy that could see some 2,000 jobs lost.

In fixed income, the yield on the benchmark 2026 government issue fell by 0.5 basis points to 8.11%.

Reporting by Olivia Kumwenda-Mtambo and Naledi Mashishi; Editing by Frances Kerry

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