Rand plumbs 10-month low against the dollar ahead of local inflation numbers

The JSE looks set to contend with mixed Asian markets on Wednesday morning, while the rand had extended losses, trading at a 10-month low to the dollar ahead of local inflation data for October later.

The Turkish lira fell almost 4% on Wednesday as the market mulled the prospect of yet another rate cut in that country this week, amid the concern that policymakers have lost independence and are bowing to political pressure.

The central bank has cut its key rate by 300 basis points since September, while inflation has risen to almost 20%, four times the official target.

As a fellow emerging-market currency, the rand often moves in sympathy with its peers, and the local currency lost 1.88% on Tuesday.

In morning trade on Wednesday it had extended losses by 0.13% to R15.53/$, having earlier weakened to its worst level since January.

Local risks loom in the form of consumer inflation numbers for October at 10am, with the Bloomberg consensus that inflation remained steady at 5% year on year. A worse-than-expected print could fuel the expectation that the Reserve Bank will raise interest rates from five-decade lows on Thursday, and any increase will be the first rate hike in three years.

Economists are split on what the Bank will do, with 10 of 20 economists polled by Bloomberg expecting rates to remain unchanged, while 10 expect a 25 basis point hike.

Rising inflation, which touched a more than three-decade high in the US in October, has become a major theme on the markets, as consumers and business battle surging energy costs and supply-chain disruptions. Policymakers have stressed that inflationary pressures are likely to subside as the world returns to normality as Covid-19 abates, while there is also a need to support the economic recovery.

Domestic political wrangling is also generating uncertainty, as parties battle to form coalitions to rule major metros, notably in SA’s economic hub of Gauteng. The rand has found some support recently, after the ANC indicated it is not looking to accept the radical left-wing terms of the EFF, with the municipal elections showing less appetite for radicalism, Investec chief economist Annabel Bishop said in a note earlier this week.

US markets were positive overnight, welcoming better-than-expected retail sales data for October, while in morning trade on Wednesday Asian markets were mixed.

The Hang Seng had fallen 0.46% and Japan’s Nikkei 0.37%, while the Shanghai Composite had risen 0.21%.

Tencent, which can influence the direction of the JSE via the Naspers stable, had gained 0.9%.

Gold was up 0.23% at $1,854.66/oz while platinum had risen 0.43% to $1,069. Brent crude was 0.61% weaker at $81.74 a barrel.

Retailer Woolworths is due to provide a market update later on Wednesday, while food producer RFG is due to release its results for the year to end-September later. RFG said in a trading update in September that its second-half performance had picked up, with the group saying there had been a pleasing recovery of fruit juice volumes and international canned fruit volumes, though inflationary pressures had mounted and shipping issues had taken their toll.

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