Moody’s, US rate hike weigh on the rand

THE RAND yesterday shed nearly 6 cents against the US dollar as investors anticipated an interest rate hike by the US Federal Reserve and await Moody’s impending ratings review on South Africa.

The local currency was bid at R12.0484 to the dollar at 5pm, compared with its R11.9869 bid at the same time on Friday.

The markets largely expect that new US Federal Reserve (Fed) chairperson Jerome Powell will deliver his first rate hike at the conclusion of the Federal Open Market Committee (FOMC) meeting this week.

Allet Oppperman, an analyst at TreasuryOne, said the US dollar flexed its muscle yesterday in anticipation of the FOMC meeting and US interest rate decision.

“There are enough whispers and uneasiness in the market surrounding a possible inflation overshoot from the US that the Fed can indicate that they will look to hike rates more aggressively,” Opperman said.

“On the local side, we still have the land reform issue hanging like black clouds over the economy regarding how exactly it will take place, and what this does to the sentiment of international investors.”

The FOMC, which usually attracts plenty of attention, comes at a time when there are fears that the Fed could raise its benchmark interest rate at a faster pace, perhaps as many as four times this year.

The fears spooked markets last month, sparking a global stocks sell-off in early February.

Moody’s, the only major agency with an investment grade rating on South African debt, but with a downgrade review, is scheduled to make a decision on Friday.

A cut to junk – following downgrades by S&P Global Ratings and Fitch – will see the country ejected from Citi’s influential World Government Bond Index, triggering up to $8.5 billion (R101.53bn) in selling by foreign investors.

Walter de Wet, a senior fixed income and currency strategist at Nedbank, said local markets could be dominated by Moody’s rating review of South Africa.

“We expect Moody’s to keep South Africa’s local and foreign rating at Baa3 with a negative outlook. The currency may well find some short-term support on the back of this news,” said De Wet.

This week is jam-packed on the data front; the South African Revenue Services will today release the fourth quarter current account figures while Statistics SA will release the inflation rate for February.