Rand stutters as the dollar looks set to gain on the euro

The rand was slightly weaker against the dollar on Tuesday afternoon as the greenback edged up against the euro ahead of US Federal Reserve chair Jerome Powell’s appearance in the Senate later in the day.

Analysts do not expect many fireworks from the local currency, at least not until after the South African Reserve Bank’s interest-rate decision on Thursday. No change in rates is expected.

Powell is set to appear in front of the Senate banking committee later on Tuesday. The Fed chair is required to appear in the Senate twice a year, with this being the first for Powell since his appointment in February.

Analysts were, however, sceptical that his testimony would have a marked effect on the dollar. “Whether we will learn as much as we have in the past is debatable, as the Fed appeared to be on quite a clear and steady course of tightening,” said Oanda analyst Craig Erlam.

ING said in a note that Powell may highlight the external challenges facing the US economy, “which could be slightly dollar-negative”.

The dollar was also supported by weaker oil prices. Oil prices bounced modestly after sharp falls on Monday, buffeted by expectations of supply increases from Libya, Russia and other producers, as well as worries that weaker global economic growth will lower demand for commodities, Dow Jones Newswires reported.

Jitters over a trade war and further normalisation of monetary policy in the US through higher interest rates have contributed to the volatility in the rand.

Earlier pound strength on upbeat UK jobs data — and the likelihood of a rate hike next month — proved to be fleeting. The unemployment rate in May was unchanged at 4.2%.

At 3pm, the rand was at R13.2624 to the dollar from R13.2205. It was at R15.5122 to the euro from R15.4823, and R17.4472 to the pound from R17.4990. The euro was at $1.1696 from $1.1711 and the pound was at $1.3155 from $1.3236.

Local bonds were slightly firmer, with the benchmark R186 government bond bid at 8.67% from 8.69%. The local bond market saw net foreign inflows of R1.01bn last week, the first positive week for the market in 11 weeks.

Analysts at Nedbank Corporate and Investment Banking said, “However, risk-off sentiment will likely remain for as long as trade-war tension continues to dominate headlines.”