The rand dipped slightly on Tuesday morning, but its underlying strength remained intact on a short-term basis after strengthening 2.4% against the dollar since the beginning of September to trade at its highest level since June 25.
SA’s currency dipped 0.20% to R14.1628/$ ahead of US consumer inflation data that could determine its next level.
Market participants have been split for months on the trajectory of US inflation, which is hovering at its highest level since 2008. While some argue its recent spike is temporary because it was fuelled by the reopening of the US after pandemic-induced interruptions, others insist that higher inflation could be durable.
US consumer price index (CPI) is likely to have eased to an annual rate of 5.3% in August, according to Bloomberg median estimate, down from 5.4% in July. Core inflation, which excludes volatile energy and food, likely softened to 4.2% year on year from 4.3%.
Investors will monitor the CPI data, as it carries implications in the expected decision by the US Federal Reserve to taper multibillion-dollar bond buying programme.
“The US has seen a small dip in its third wave, but it is too early to be certain this signifies an actual moderation in the wave itself, and the path of Covid-19 remains uncertain, both in the US and overall globally, with further waves expected over next year too,” Investec chief economist Annabel Bishop said in a note.
“The Fed has sounded caution on normalising monetary policy in the face of this uncertainty, which has benefited the rand and some other risk-on trades but has also caused some volatility, with focus on US economic indicators for when quantitative easing tapering will begin,” Bishop said.
The rand has been sensitive to the prospect of possible reduction in bond buying programme as it weakened to R15.40 during August, which was the highest level in five months before bouncing back to current levels.
The JSE is likely be choppy given the mixed session in Asia, where jitters over the regulatory overhang on Chinese stocks continue. Commodity prices were mixed, with Brent crude rising 0.43% to $73.97 a barrel.