Rand rebounds as focus shifts to US Fed

The rand was firmer against the dollar on Wednesday morning as focus shifts to the US Federal Reserve’s monetary policy decision while locally, consumer inflation accelerated above expectations.

The Fed is expected to announce its interest-rate decision on Wednesday with markets pricing in a 56.5% chance of a 25 basis-point cut and a 43.5% likelihood that the Fed will keep the target rate unchanged, according to CME Group’s FedWatch tool, on Wednesday morning.

Expectations that the Fed could cut rates by 50-basis points have been dampened by better-than-expected economic data, trade war optimism and stabilising oil prices.

The rand is the best-performing emerging-market currency over the past month, as expectations of global monetary policy easing improves appetite for riskier assets.

Lower interest rates in developed economies such as the US make the higher-yielding bonds of emerging-markets such as SA more attractive for investors in search of better yield.

Standard Bank currency dealer Warrick Butler said the rand could reach R14.05/$ — a level it has not reached in almost two months — should the Fed opted to cut and the Reserve Bank keep rates unchanged at 6.50% on Thursday.

“A cut and dovish statement and it could be pile-on misery for the dollars as high-yielding assets are scooped up in a panic,” Butler said.

The SA Reserve Bank is expected to announce the repo rate on Thursday. The consensus among 18 economists polled by Bloomberg is that the Bank will keep the rate unchanged.

Locally, consumer inflation accelerated 4.3% in August year on year from 4% in July, data from Statistics SA showed on Wednesday. The latest inflation print falls below the Bank’s midpoint target of 4.5%. The consensus was for consumer inflation to increase 4.2%, according to a Bloomberg poll. Statistics SA is also expected to release retail sales for July later in the day.

At 10.06am, the rand had firmed 0.37% to R14.6427/$, 0.56% to R16.18444/€ and 0.59% to R18.2613/£. The euro had weakened  0.16% to $1.1053.

Gold was flat $1,501.295/oz while platinum was down 0.15% to $938.83.

Oil prices slipped earlier on Wednesday, extending losses from the previous session after Saudi Arabia’s energy minister said the country would restore lost oil production by the end of September. Brent crude has since added 0.45% to $64.28 a barrel.

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Source: businesslive.co.za