Rand firms as investors eye rates decision

The rand broke a four-day losing streak on Monday, while the JSE closed weaker amid mixed global peers as investors monitor the US debt-ceiling negotiations.

Locally, attention falls on April consumer price inflation data on Wednesday and the SA Reserve Bank’s monetary policy committee decision on interest rates on Thursday. The market is expecting inflation to come down slightly to 6.9% year on year after a surprise uptick in March to 7.1%.

TreasuryONE currency strategist Andre Cilliers said SA could have between a 50 and 75 basis points hike in rates on Thursday. “The reason will be because inflation remains sticky above the 3%-6% target band, and also to try to stem the continued losses of our local currency.

“The rand started the week firmer but is still under pressure. The interest rate hike could bring some temporary relief, but our local structural issues will remain,” said Cilliers. “The other issue is that the rest of the emerging market space is under pressure as the dollar rallies as global recession fears linger. The new range for the rand seems to be R19.00/$ to R19.50/$, and we need a sustained break below R19/$ to see more gains.”

At 5.50pm, the rand had strengthened 0.94% to R19.239/$, 0.94% to R20.7894/€ and 0.97% to R23.9093/£. The euro was little changed at $1.0803.

In the US, President Joe Biden and house speaker Kevin McCarthy are set to meet later on Monday to continue debt-ceiling talks, with just 10 days to June 1 the earliest date that treasury secretary Janet Yellen said the US could default on its debt.

Investors are also eyeing Wednesday’s release of Federal Reserve minutes from the May meeting, which could shed light on what the world’s most influential central bank’s intention is on further rate hikes.

“It hasn’t been the most thrilling start to the week with investors watching a lot of deal making, awaiting debt-ceiling negotiation updates, and rethinking the Fed’s interest rate path,” said Oanda senior market analyst Edward Moya.

“The biggest driver for markets remains the ongoing debt-ceiling talks that will hopefully avoid a looming debt default. We are getting closer to treasury secretary Yellen’s X-date and that should start to lead to market stress. The base case is still for a debt deal to be reached, but the risk of a default is still on the table,” Moya said.

The JSE all share index lost 0.27% to 77,962.73 points, with major indices mixed, while the top 40 was 0.3% weaker.

At 6pm, the Dow Jones industrial average was 0.15% weaker, while markets were mixed in Europe.