Rand outlook uncertain with US Fed hazy on interest-rates moves.

Though the rand had largely stabilised since its retreat on Wednesday, the outlook remains uncertain, with the US Federal Reserve minutes released later in the day not providing a clear indication on the timing and extent of further US interest-rate increases for the rest of 2017.

With the dollar still the main driver of rand movements, the market has seemingly had another look at the cause of Wednesday’s 2% drop after reports that President Jacob Zuma’s populist faction was weakened at the ANC’s policy conference.

Concern about pressure for the nationalisation of the Reserve Bank has abated.

“The proposal may be an attempt to win headlines without actually changing anything,” said Capital Economics analyst John Ashbourne.

Some traders have positioned themselves for a weaker rand at R13.80 to the dollar, but that may be a bridge too far if emerging market sentiment remains positive.

The forex markets are now eyeing Friday’s US nonfarm payroll data for clearer guidance on interest rates.

If the figures prove better than expected, it will encourage the Federal Reserve in its hawkish stance, despite lower inflationary pressures in the US. “Currency markets are in limbo … as we await the US jobs numbers,” said Treasury-One trader Philip Pearce.

The rand’s weaker performance on Wednesday was not far out of line with those of other emerging-market currencies.

“The initial weakness was spurred by a clear risk-off sentiment which hurt emerging market currency as a whole,” Pearce said.

The Turkish lira, Philippine peso and Korean won were all under pressure on the day. The Russian rouble fell 1% in a third successive day of losses in the light of lower oil prices.

The rand recovered from intraday weakest levels on Thursday. It still shows a gain of 2.1% against the US currency so far in 2017. This was unexpected with the dollar expected to gain on further US rate hikes, but lack of clear Federal Reserve guidance has given emerging-market currencies some leeway.

With the sharper focus on the Reserve Bank, analysts said the Bank’s relatively hawkish stance would come under continued scrutiny amid a relatively underwhelming performance from the dollar.

Old Mutual Multi-Managers analyst Izak Odendaal said the Bank had so far stuck to a traditional view, remaining concerned that Federal Reserve rate increases would lead the dollar higher and had maintained relatively high rates as a result. “But clearly this is not happening, nor has a string of downgrades derailed the local currency,” he said.

Lower inflation could present new opportunities for the Bank to reduce rates. But given the prevailing mood, the Bank may wait until 2018 before implementing a first cut.

Lower interest rates could be a double-edged sword for the Bank as it may weaken the rand on lower local bond yields if US bond yields continue to rise.

Some fillip in local growth in a lower interest rate environment may, however, support the local currency in the longer term if political issues settle down.