Rand draws breath, then lets it all out
US Fed chair’s hawkish tone sets the stage
THE HAWKISH monetary policy tone taken yesterday by the new US Fed chairperson, Jerome Powell, saw the rampant rand take a breather, plunging to R11.71 against the dollar at 5pm from a day’s high of R11.55.
The local unit strengths following Monday night’s cabinet reshuffle that saw well-respected Pravin Gordhan and Nhlanhla Nene returning to key cabinet positions in the economic cluster abated as market focus turned to Powell’s testimony before US legislators.
In a brief explanation of his cabinet choices, President Cyril Ramaphosa gave economic growth as one of the reasons.
“I have been conscious of the need to balance continuity and stability with the need for renewal, economic recovery and accelerated transformation.”
The euphoria over the cabinet reshuffle was tempered, however, by some retention of the controversial ministers who served on his predecessor’s cabinet.
Tiffany Pollock, a forex and money market trader at Merchant West, said the initial reaction to the widely expected return of Nene as finance minister and appointment of Gordhan as public enterprises minister saw the rand strengthen to R11.51 to the dollar.
“But as the market pondered the many compromises in Ramaphosa’s cabinet – such as reshuffling Malusi Gigaba, Bathabile Dlamini and Nomvula Mokonyane instead of firing them, and appointing David Mabuza as deputy president and Bheki Cele as police minister – the rand weakened to R11.65,” Pollock said.
Powell’s appearance before the House Financial Services committee was his first as the powerful chairperson of the world’s most influential central bank.
His prepared remarks struck an upbeat tone and downplayed concerns over recent market volatility, and said the central bank remains on course for more interest rate hikes.
Powell noted: “Further gradual increases in the federal funds rate will best promote the attainment of both of our objectives. As always, the path of monetary policy will depend on the economic outlook as informed by incoming data.”
His upbeat tone gave the clearest indication yet that a March rate hike was a near-certainty, as is discounted in markets.
Earlier this month, global markets slumped on intensifying worries over prospects of rising interest rates in the US.
The local bourse closed yesterday’s session in a muted territory at 59 207, adding just 158 points.
Allet Opperman, an analyst at TreasuryOne, said the general consensus was that the reshuffle had received a warm welcome and that Ramaphosa continued to work towards economic recovery.
“For the remainder of the week, the rand should be mostly impacted by foreign events like the semi-annual testimony to Congress by Fed chair Powell. Positive comments could spike a dollar run and help the greenback recover some of the losses it has suffered lately,” Opperman said.
The rand has gained significant ground against the dollar in the past two months, growing from a record low of R16.86 in December 2015 to its current levels of under R11.80. The strengthening of the rand has been influenced chiefly by Ramaphosa’s election.