Rand stabilises in line with global markets

The rand was relatively calm in midmorning trade on Wednesday, but fared a lot better than a weak ago when it flirted with R14/$ for the first since late November.

A weaker rand increases the cost of imported goods, which can have knock-on effects on consumer prices.

Though headline inflation has been tame so far, within the Reserve Bank’s 3%-6% target range, economists expect upward pressure on prices in the coming months as a result of higher fuel prices and other levies.

The developments are likely to put the Bank in an unenviable position, as it weighs the risks of higher inflation against expectations of relatively low economic growth.

The economy stagnated more than expected in the first quarter, prompting some economists to revise down their growth forecast for the year.

With the US markets shut for a public holiday, the rand and broader financial markets were likely to struggle for clear direction until Thursday, when the US Federal Reserve will release minutes of its most recent meeting.

Markets will be hoping to get a sense of how US policy makers view the outlook on rates in the context of the fears about a trade war.

To date, the US Fed has been confident about the US economic outlook after raising interest rates by a cumulative 50 basis points since the start of 2018 and two more expected by the end of the year.

Higher US rates have previously strengthened the dollar at expense of the rand and other emerging-market currencies via bond outflows in particular.

In the past, SA and other emerging markets have benefited from the era of a low interest-rate environment in developed markets, which encouraged the so-called carry trade — where money is borrowed in low interest-rate environments and invested in currencies that offer higher returns.

At 10.28am, the rand was at R13.7014 to the dollar from R13.6746. It was at R15.9552 to the euro from R15.9429, and R18.0515 to the pound from R18.0446.

The euro was at $1.1644 from $1.1659.

Source: businesslive.co.za