Rand weakens as market sentiment sours

The rand was weaker on Tuesday morning, as it was caught up in global sentiment.

Equities were under the cosh, resuming the downward spiral that has been in force in recent months.

Catalysts were plentiful, although not necessarily new. The budget standoff between Italy and the EU was one concern.

“Yesterday’s response by the Italian government on the first official rebuke by the European commission on its 2019 budget plans was one of defiance,” UK-based Rabobank International analysts Elwin de Groot and Bas van Geffen wrote in a note.

“Given Italy’s defiance, EU commissioners may follow up the EC’s official warning with a negative opinion on the budget as early as today, after their meeting in Strasbourg. Such a move would be unprecedented and would give Italy three weeks to ‘correct’ its plans. Despite the offer for ‘constructive talks’ it seems that there is no easy way out from the current standoff between Italy and the commission.”

The weaker rand comes on the eve of a crucial medium-term budget policy statement, which ratings agencies and investors will closely monitor to see if it sticks to the fiscal consolidation objectives.

“Credibility will be a watchword. Markets want to see if the country is in control of fiscal trajectory,” said Halen Bothma, market analyst ETM Analytics.

New finance minister Tito Mboweni will also give details on the recovery plan and stimulus package, announced by President Cyril Ramaphosa a few weeks ago.

StatsSA releases inflation data on Wednesday, which could have implications on interest rates. 

Trading Economics expect inflation to have quickened to an annual rate of 5.1% in September, from 4.9% in August.

Worse than expected inflation figures could tip the scales in favour of a rate hike.

In September, the Reserve Bank’s monetary policy committee kept rates on hold at 6.50%, but the outcome was as close as it could get, separated by a single vote.

The weaker rand increases the cost of imports, such as petroleum products, thus feeding into inflation over time.

At 9.46am the rand was at R14.3594 to the dollar from R14.3207, at R16.4686 to the euro from R16.4177 and at R18.6525 to the pound from R18.5763. The euro was at $1.1470 from $1.1464.

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