Rand dips below R14 vs the dollar ahead of rates call
The rand gained against the major currencies in mid-day trade on Monday, dipping below R14.00 against the dollar ahead of the repo rate announcement by the South African Reserve Bank, on Thursday.
Andre Botha, senior currency dealer at TreasuryONE, said that the rand is trapped in a range of R14.00 to R14.50, with quite a lot of scope for some volatility. “This was in evidence last week as the rand bolted to the R14. 50 level in early week trading only to close to the R14.00 level.”
He pointed out that the the local unit was dominated by movement in the US dollar.
“Early in the week, the US dollar traded at levels last seen in 2017 when the Euro fell on the back of the Brexit negotiations and Italy defying the EU with their budget that was not in line with EU regulations. The dollar moved the other way on Friday, as the Fed raised concerns over the global economic climate and whether growth will slow down in 2019.
“We have seen gold rising on investors running scared after the Fed statements and that has also helped the rand,” Botha said.
Looking at the week ahead, all eyes will still be on the US dollar and the market will take their cues from any US dollar movement.
“We do have the small matter of the South African MPC meeting this week, and the market is split over will there be an increase in the interest rate following the close call at the previous meeting and where the South African market is currently finding itself. With the decision being a close call we expect some volatility come Thursday,” the trader said.
“It will be interesting to hear how SARB’s new Quarterly Projection Model – which now include factors such as political risks – will impact on the inflation outlook on Thursday,” said Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions.
“There is no real data on the cards for release today, but the market will look out for any political hints from both the US and Britain. Also, we should not discount the importance of the amendment of section 25 of the SA Constitution in the upcoming weeks, as this might get interesting.
“The rand is outperforming most of its emerging market peers at the moment – let’s see if we can keep the momentum. The trading range for Monday is expected to be R13.95 to R14.18,” Botes said.
Bloomberg reported that while a recession and falling inflation expectations in Africa’s most-industrialised economy could keep the MPC cautious, the panel has made it clear it prefers price growth closer to 4.5%. It predicts average consumer-price growth at more than 5% next year and in 2020.
“The last week or two of oil, particularly, means that it is a closer call,” Gina Schoeman, an economist at Citibank South Africa, said by phone. “If they increase the rate like we think they will, it is what the market calls a dovish hike. In other words, ‘we’re hiking but don’t worry – we’re not destroying GDP growth, we’re helping to anchor inflation’.”
- Dollar/Rand: R13.96 (-0.22%)
- Pound/Rand: R17.96 (0.17%)
- Euro/Rand: R15.95 (-0.18%)
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