US wages data dampens interest rate hikes expectations

US wages data dampens interest rate hikes expectations

SOUTH Africa’s rand reversed recent losses on Friday, gaining more than 1 percent as weaker-than-expected US wages data dampened expectations of a spate of interest rate increases this year by the Federal Reserve.

While US employment expanded faster than market estimates, wages growth stalled, pushing the greenback lower against most currencies as investors reassessed expectations the US central bank would raise interest rates at least three times in 2017.

The rand had slipped to a 3 week low in the previous session as traders positioned themselves for a dollar rebound ahead of the Fed’s policy meeting on Wednesday, and still remains some distance from the R13 resistance level.

Mining and manufacturing production figures due next week are expected to show the two major sectors of South Africa’s economy remain under pressure following sharp contractions in 2016 that drove the economy to shrink in two out four quarters.

Data showed 235 000 jobs were added in the US in the public and private sectors in February, blowing past economists’ average estimate of 190 000. The number of jobs created in January was revised up to 238 000.

Unemployment rate edged down to 4.7 percent, while average earnings rose 0.2 percent in February. “This report is consistent with an exceedingly healthy labour backdrop and, I think more critically, it’s a number that will embolden the Fed to raise rates in March,” said Tom Porcelli, the chief US economist at RBC Capital Markets in New York.

The rand had drifted around the R13.45 to the dollar resistance point for most of the session, with little in the local market to push the unit definitively past the level it has struggled to break since mid-January.

“Markets were focused on the wage number, and it came in lower than expected. The initial reaction by the rand was that you wouldn’t see imminent and aggressive interest rate hikes by the Fed in future,” said chief economist at Stanlib Kevin Lings.

While the world’s top economy added 227 000 jobs in January, the largest gain in four months, wage growth was modest, prompting bets the Fed would keep lending rates unchanged in March, having kept them unchanged on Wednesday.

US employers hired workers at a robust pace in February, beating expectations, and wages went higher, which could give the Federal Reserve the green light to raise interest rates next week despite slowing economic growth.