Vulnerable rand braces for US Fed minutes

The rand which breached the R15/$ mark last week, remains vulnerable as the US Federal Reserve Bank will release minutes from last week’s meeting. The Fed will also host an economic policy symposium later this week.

The local currency opened at R14.68/$ on Monday morning, and strengthened o.85% to R14.52 by 11:02.

Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions said the rand will remain on the backfoot, even after recovering from a low of R14.99/$ on Friday. “There are no guarantees that the level will not be tested again and even less of a guarantee that we won't break it this time around,” she said.

The Fed will address media on Monday afternoon, releasing minutes from its August meeting, and analysts will take note of the tone. A hawkish tone would add pressure to the local unit, she explained in a market note.

Botes expects the rand to trade within a range of R14.45 and R14.80 for the rest of the day, while analysts from NKC Economics expect the rand to trade within a range of R14.50 and R14.90 to the greenback.

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Andre Botha, senior currency dealer at TreasuryONE shared views that if the Fed intends to hike quicker then there will be a ripple through the market.

He added that speculation of the US and China settling differences on trade tariffs could help emerging market currencies. 

The 25% trade tariffs on $16bn (about R231bn) of Chinese imports are to take effect this week, but a Chinese trade delegation in Washington will try on Wednesday to esolve the trade dispute, said RMB economist Mpho Tsebe.

Local data

Local events such as land reform will unlikely weigh on the rand, Botha said. The inquiry into State Capture led by Judge Raymond Zondo kicked off on Monday.  

The focus will fall on local data such as the CPI inflation for July which will be released on Tuesday.

“Having surprised to the downside for five consecutive months, we expect headline inflation to have ticked up to 5% year-on-year in July from 4.6% in June, and for core inflation to remain unchanged at 4.2% year-on-year,” said Tsebe.

“The upward trend is attributed to higher administered prices and rising fuel costs,” she explained.

Even though it is increasing, inflation remains within the Reserve Bank’s target band of 3% and 6%.

“As a result, we expect the SARB to keep the policy rate unchanged at 6.5% for the remainder of 2018, turning more hawkish as risks to the inflation look remain to the upside,” said Tsebe.

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