Pos­i­tive US data has ‘re­silient’ rand on re­treat

Dol­lar finds sup­port as mar­ket awaits FOMC out­come

The Star Early Edition - - BUSINESS NEWS - Kabelo Khu­malo

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.

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