Rand weakens on global oil supply worries

The rand entered its second consecutive day of losses on Tuesday after an attack on Saudi oil facilities fuelled concerns about global oil supply.

A drone attack at the weekend, which more than halved Saudi Arabia’s production capabilities, saw investors rush to safe-haven assets and oil prices surge amid concern about the effect the attack will have on global supply, and the inflation outlook for net oil importing countries such as SA.

“We have seen the oil price rocket up as global supply concerns have hit the market. This latest oil price spike has caused the inflation concerns which could have some ripple effects in the world economy,”  senior currency dealer at TreasuryONE Andre Botha said.

Oil prices gradually steadied on Tuesday while the price spike has taken the rand off its one-month high level. The rand has been supported by hopes of global monetary policy easing and comments by Moody’s Investors Service that SA is safe from a credit-ratings downgrade for the next 12-18 months.

The US Federal Reserve is expected to begin its two-day meeting on Tuesday before announcing its decision on interest rates later in the week. The markets have partially priced in at least a 25 basis-point cut amid fears of an economic slowdown.

“One of the immediate factors is that some analysts are now cautioning the market that the Fed could hold rates unchanged to first assess the inflation impact that the latest market shock could have on economies. However, the overall feeling is that the Fed will cut their interest rate tomorrow,” Botha said.