Rand steady as dollar pauses on hawkish US Fed minutes

The rand was largely unchanged on Thursday afternoon as the dollar continued to consolidate around $1.15 to the euro ahead of expected further interest-rate hikes in the US.

The market has priced in another hike in December, with three more increases expected in 2019, which would take rates in the US to a level slightly above neutral. Neutral is the level of interest rates judged to be neither accommodative nor punitive to the economy.

The dollar rose to its best level in two weeks on Wednesday, as the US Federal Reserve signaled that the strong economy continues to justify additional interest-rate increases, Dow Jones Newswires reported. 

Oanda analyst Craig Erlam said the Fed minutes re-affirmed the widely held opinion at the US central bank that interest rates have further to rise, including another hike this year.

“Why this came as such a surprise is something of a mystery as the minutes didn’t appear to deviate from the message after the meeting when the central bank raised interest rates and removed the reference to policy being accommodative,” Erlam said.

Elsewhere, the breakdown of Brexit negotiations on Sunday has left investors sceptical that any substantial progress will be made at the EU summit this week. The pound was stable against the dollar as market participants still believe a deal will eventually be reached, despite the March 2019 deadline approaching, the newswires said.

Local mining production continued on its downward trajectory in August, slipping even further by an annual 9.1%, following July’s contraction of 4.1%, revised upwards from a decline of 5.2%. This was notably above market expectations of a 4.0% fall.

The mining numbers are likely to drag SA’s GDP growth down in 2018, despite higher-than-expected retail sales data released on Wednesday. Capital Economics predicts that that full-year GDP growth will be just 0.5%.

At 2.58pm, the rand was at R14.2647 to the dollar from R14.2498, at R16.4055 to the euro from R16.3903, and at R18.6902 to the pound from R18.6904. The euro was at $1.1501 from $1.1500. The pound was at $1.3103 from $1.3114.

Local bonds were largely unchanged with the R186 bid at 9.15% from 9.13%. The benchmark US 10-year treasury was last seen at 3.2010% from 3.2018%. 

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