Rand stabilises at better levels after US Fed’s statement

The rand stabilised at relatively better levels on Thursday morning, after the markets perceived the US Federal Reserve’s minutes of its most recent meeting to be leaning towards caution in raising interest rates.

The Fed’s statement took the wind out of the dollar’s sails, thus helping the rand to rally towards R12.40/$, from lows of nearly R12.70 on Wednesday.

“The minutes of the FOMC [federal open market committee] meeting held from May 1-2 confirm that the Fed is on course to hike in June — and two more times in the second half of 2018,” Rand Merchant Bank analyst Isaah Mhlanga said in an e-mailed note to clients.

“There was no change in the Fed’s assessment of economic growth outlook compared to the March meeting, but officials raised concerns that the possible trade policy outcomes could depress spending and business confidence.”

US President Donald Trump continues to send out mixed signals regarding the US-China trade dispute. At the weekend, the world’s leading economies agreed to work on a framework that would limit trade imbalance between the two of them.

The rand has been highly volatile in recent sessions, knocked by swings in global sentiment.

The Turkish lira weakened afresh in early trade, just hours after the country’s central bank raised interest rates by 300 basis points to stabilise the currency, which has been in freefall against the dollar since the start of May.

The volatility in global markets is likely to lead the South African Reserve Bank to press pause in its rate-cutting cycle.

The weaker rand fans inflation, which pushed up to an annul rate of 4.5% in April, from a seven-year low of 3.8% in March.

Several factors would have conspired to push up prices in April, including the effects of high fuel prices and value added tax (VAT).

At 10.54am, the rand was at R12.4337 to the dollar from R12.4509, R14.6002 to the euro from R14.5642 and R16.6662 to the pound from R16.6297.

The euro was at $1.1742, from $1.1697.