Rand holds steady as US jobs data raises prospect of further Fed rate hikes

In August, average hourly earnings for all employees on private nonfarm payrolls rose by 10 US cents to $27.16. Over the year, average hourly earnings have increased by 77c, or 2.9%, from an expected 2.7%, and the highest increase since 2009.

The market is now pricing in a 96.3% likelihood of a hike by the Fed later in September, promising little let-up for the rand, which has depreciated 18% against the greenback so far in 2018.

Analysts expect global factors to effect the rand, as the daily forex turnover for the rand as a percentage of annual GDP is a hefty 18%, but South African trade accounts for less than 1% of that.

“Hence the starting point for the rand should always be to understand what is going on globally with commodity prices, Fed interest rate cycles, global growth and trade or simply the outlook for the dollar,” Nedbank analyst Mehul Daya said.

He said if local and global conditions look good, the rand will do very well, while it is likely to fare badly if negative local conditions combine with bad global conditions, which has been the case over the past few weeks.

“Even when local conditions appear positive, such as with Ramaphoria, and global conditions are unsettled, the rand does not perform that well,” Daya said.

At 3pm the rand was at R15.187 to the dollar from R15.3343, at R17.5632 to the euro from R17.8246 and at R19.6846 to the pound from R19.8223.

The euro was at $1.1565 from $1.624.

Local bonds tracked rand gains, with the benchmark R186 10-year government note last seen at 9.15% from 9.18%.

The US 10-year treasury was at 2.9282% from 2.8771%.