Rand comes off six-month low as offshore data disappoints

The rand reversed earlier losses to trade firmer against major global currencies on Wednesday afternoon, buoyed by international data releases, but with market focus still remaining on the US Federal Reserve.

Domestic news was negative, but the rand continues to take its direction from offshore events, with both UK producer inflation data coming in lower than expected, while eurozone industrial production numbers also missed their target.

The major event on Wednesday remains the US Fed’s interest-rate decision, expected at 8pm local time. The market has almost entirely priced in a 25 basis-point increase, although the commentary from Fed officials will be closely scrutinised.

Despite the growing interest rate differential between the US and eurozone, the dollar remains only slightly better bid, suggesting the market was waiting for the Fed’s forward guidance, said BK Asset Management MD Boris Schlossberg.

The rand usually tracks the euro, suggesting further weakness for the local unit could be expected should the Fed deliver a hawkish statement.

Domestic news was disappointing, with the RMB/BER business confidence index earlier showing a decline to 39 points in the second quarter of 2018 from 45 in the first. This further suggests the confidence boost from a shake-up in the government and at state-owned enterprises (SOEs) is beginning to unwind a little, RMB said.

Retail trade sales data also came in well below expectations, increasing by a dismal 0.5% year-on-year in April, after a [revised] 4.6% year-on-year increase in May 2018. Economists had expected April to record about 4% growth.

Some focus is also on Eskom, where a strike is threatened on Thursday.

Local bonds were much weaker in the mid-morning session, with the yield on the benchmark R186 at 9.045% from 9.01%, its highest level since mid-December. The market, however, recovered in line with the rand, and by mid-afternoon was slightly firmer.

At 3pm, the rand was at R13.2392 to the dollar from R13.3241, R15.5909 to the euro from R15.6496, and R17.6763 to the pound from R17.8158. The euro was at $1.1775 from $1.1745.