South Africa’s rand firmed overnight to trade below R17 to the US dollar on Thursday morning – its strongest level since late August.
The local currency was trading at R16.93 at around 6:00, buoyed by news out of the US that the Federal Reserve may taper its interest rate hikes.
Now, the focus locally will be on South African Reserve Bank (Sarb) governor Lesetja Kganyago’s repo rate announcement on Thursday afternoon.
Most Fed officials seek to slow pace of interest-rate hikes soon
South Africa to stay the course of aggressive rate hikes
It remains to be seen whether the Sarb’s Monetary Policy Committee (MPC) will be swayed in any way by sentiments out of the US Federal Open Market Committee’s minutes from its November meeting.
The release of the minutes late on Thursday night (SA time), saw the dollar weaken against the rand and other emerging market currencies, as the Fed signalled possible slower rate hikes.
The Fed also flagged concerns around the US possibly going into a recession – sentiments that some market commentators and economists see as another indication of the Fed wanting to temper the hiking cycle.
Dollar falls on slower Fed rate path
Fed staff warn chance of US recession in next year is now near 50%
On the local front, however, SA’s latest headline inflation number came in higher for October on Wednesday. This is likely to add pressure on the Sarb to be more conservative or hawkish in its sentiments and repo rate decision.
Following the release of October’s CPI, most local economists and market watchers have reiterated their call that the Sarb will have no option but to hike the repo rate sharply by another 75 basis points on Thursday.
Read: SA’s CPI rises to 7.6%
Listen to David Shapiro of Sasfin Securities speaking about the increase in SA inflation on SAFM Market Update: