Hawkish Fed trips up rand’s rebound

Optimism that the rand was poised for further strength following the US midterm elections came to an untimely end last week, with the rand losing 30c to the dollar following a five-day winning streak. The local currency is expected to continue to be at the mercy of global markets.

Optimism that the rand was poised for further strength following the US midterm elections came to an untimely end last week, with the rand losing 30c to the dollar following a five-day winning streak.

The local currency is expected to continue to be at the mercy of global markets, but there is growing hope that stability in the rand and easing inflationary pressures could lead to the Reserve Bank cutting interest rates in coming months.

The rand reached R13.88/$ last week, as risk appetite surged after the US elections ended with the Democrats capturing the House of Representatives from the Republicans.

Although the rand headed into the weekend on a defensive footing, that had not detracted from longer-term optimism that the local currency was making a recovery, said analysts at Mercato Financial Services.

ETM Analytics market analyst Halen Bothma said last week that while there was scope for the rand to recover from oversold levels, the outlook was murky given the fickle environment stemming from the China-US trade dispute and extent to which it could affect global growth and sentiment.

Analysts expect the rand could end the year at about R13.70/$, but much depends on movements in the euro and the greenback, particularly if the euro weakens past the $1.13 level, analysts said. This could trigger a bull run for the dollar, with the rand usually tracking the euro.

The euro had held at that support level twice, but the third time could prove to be the charm, said BK Asset Management MD Boris Schlossberg. This was particularly the case should the US Federal Reserve continue to tighten monetary policy at a faster pace than the European Central Bank, he said.

Dismal local mining and manufacturing also added to pressure on the local currency

On Sunday the rand was at R14.33/$.