Positive US data has ‘resilient’ rand on retreat

Dollar finds support as market awaits FOMC outcome

THE RAND was on the retreat against the major currencies yesterday as the greenback got support from positive US manufacturing purchasing managers index (PMI) released on Monday and investors waited for the outcome of the US Federal Open Market Committee (FOMC).

At 3pm, the local unit was bid at R13.04 to the dollar from R12.96 at 5pm on Monday and R15.23 to the euro from R15.09 and R17.01 to the British pound from R16.90.

Nedbank economic analyst Reezwana Sumad said the local currency had shown resilience in the previous sessions.

“Although the rand has performed resiliently despite various local factors, it has thus far failed to make any new lows. Technically this would suggest a significant possibility of a test toward the upper end of the prevailing range,” Sumad said.

On the equities front, the allshare index inched up 0.2 percent to 54 481 points from the previous closing session of 54 368, supported by resources and commodity stocks, which got support from the pledges of Saudi Arabia and Nigeria to pull back on exports and output, giving rise to expectations that market rebalancing was looming.

Resources 3.3 percent led by Kumba Iron Ore, which rocketed 10.98 percent to R192.

Commodity prices also benefited from the weaker rand and at 3pm Brent crude surged 2.8 percent to $49.46, while palladium rose 1.4 percent.

The surge in oil prices saw Sasol stocks inch up 3 percent yesterday despite reporting an underwhelming trading statement.

TreasuryOne analyst Allet Opperman said that anticipation of US Fed decision on interest rates was instructive for the rand’s movement.

“The weakness looks to be driven by positioning squaring in risk assets as we head towards the US Fed rate decision (tomorrow).

“Emerging market currencies in general lost ground yesterday. The probability of another US rate hike is virtually zero in the eyes of the market, so the mild risk-off situation we find ourselves in will more than likely be short-lived after the FOMC statement,” Opperman said.

US Fed chairperson Janet Yellen earlier this month calmed markets jitters of a more hawkish outlook on monetary policy when she told US legislators that the Fed would opt for gradual increases in interest rates, citing concerns over low inflation.

Fears of a US interest rate hike were further allayed when it was reported this month the headline rate of US inflation eased to 1.6 percent in June from 1.9 percent in May, stubbornly lower than the Fed’s 2 percent target.

Tiffany Pollock, an analyst at Merchant West, said: “The rand has been one of the main beneficiaries of an emerging-market rally this year, driven by the belief that the US Federal Reserve will only enact rate increases slowly.

“The high returns on South African bonds mean it’s unlikely to weaken much, especially as the central bank will be cautious about further cuts with inflation near the top of its target range,” Pollock said.