Rand firms as focus turns to Fed meeting

The rand broke a five-day losing streak on Wednesday as investors digested worse-than-expected local inflation data, while the JSE closed firmer with markets focused on the outcome of the US Federal Reserve policy meeting.

SA annual consumer inflation rose for the first time in four months in February. The headline consumer price index (CPI) rose at an annual rate of 7% in February, up from 6.9% in January and above the Bloomberg median estimate of 6.8%. Core CPI, which strips out volatile energy and food prices, rose 5.2% year on year, up from 4.9% in January.

“CPI being higher means another possible rate hike next week when the SA Reserve Bank concludes its monetary policy committee meeting,” said James Turp, fixed-income portfolio manager at Sanlam Investments.

The Fed, meanwhile, faces the tough task of reining in stubbornly high inflation while maintaining stability in the banking system after the recent failure of Silicon Valley Bank and Signature Bank.

Markets are divided on whether the US central bank will opt for a 25 basispoint hike or pause its hiking cycle at the conclusion of its federal open market committee meeting.

“There’s probably a bit of an overreaction in the currency as a result of local CPI numbers, and the possibility of the Fed not hiking rates or being a little dovish,” Turp said.

“Despite some recovery in the rand, there’s still a lot of risks going into the Fed announcement.”

At 6.26pm, the rand had strengthened 1.16% to R18.3439/$, having earlier gained just over 1.3%. It was also 1.03% firmer at R19.7748/€ and 0.98% stronger at R22.4247/£. The euro was 0.2% firmer at $1.079.

“General risk-on trade benefited the rand as has a softer dollar and higher key export commodity prices such as gold, platinum and copper,” said IG senior market analyst Shaun Murison. “Whether we can hold onto gains remains to be seen as we await outcomes from the FOMC meeting.”

The JSE all share gained 1.31% to close at 75,243.44 points and the top added 40 1.39%.

Industrials rose 1.86%, banks 1.65%, financials 1.58%, food producers 1.54%, precious metals 0.74% and resources 0.18%.

The Dow Jones industrial average was 0.41% weaker at 32,426.58 points at 7.10pm, while the S&P 500 was down 0.28%, though markets in Europe closed firmer.

Gold gained 0.43% to $1,948.20/oz and platinum added 0.96% to $979.81/oz. Brent crude was 1.53% firmer at $76.18 a barrel.