Rand steady as markets bet on US rate cuts

The rand was steady on Thursday morning, holding on to the 1.17% gain against the dollar it registered on Wednesday, with the market still pricing in a series of interest rate cuts by the US Federal Reserve.

Fed minutes on Wednesday indicated that the Fed is not planning an aggressive interest rate cycle, but the market is not convinced, and is still pricing in cuts that will increase the relative attractiveness of emerging-market bonds, including SA’s.

Investors are worried that US policymakers will shift their guidance at the Jackson Hole conference on Friday, said BK Asset Management’s MD for foreign exchange strategy, Kathy Lien. This was why the market ignored the relatively hawkish Fed minutes.

A lot had changed since the Fed’s July minutes, said Lien, and risks persisted in the form of the economic performances of the US, the eurozone and China.

At 9.33am the rand was flat at R15.1765/$, R16.8447/€ and R18.4269/£. The euro was 0.13% firmer at $1.1099.

The rand’s volatility has also eased a little, with the Turkish lira overtaking the rand as the most volatile emerging-market currency on a one-week basis on Thursday.

Locally, the National Treasury has said it wants government departments to draft plans to slash their budgets for the next three years, beginning with a 5% cut in 2020 and 6% and 7% for the years thereafter.

This local news had little effect on the currency, said Standard Bank currency trader Warrick Butler, and downside risks to the rand persisted.

“The market is not gullible enough to hang on to something that thin or precarious. That movie has been shown far too many times,” said Butler. “We all know the shark eats the swimmer.”

The rand was probably just feeling the effects of a big loss in August, and was finding support from a quieter global environment and activity related to trading in the dollar, Butler said.

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