Rand weaker as markets eye interest-rate decisions by Reserve Bank and Fed
The rand was weaker against the dollar on Monday afternoon, as the market expected no change in interest rates in the US when the Federal Reserve pronounces on the matter on Wednesday.
The dollar has weakened in the light of the Fed’s expected decision, while there is also concern the central bank could use the opportunity to signal an unwinding of its inflated balance sheet.
The likelihood of a US interest-rate hike by the end of year stands at 56%, according to CME’s FedWatch.
Some analysts expect a cut in the local repo rate of 25 basis points when the Reserve Bank announces its decision on Thursday. This may boost GDP growth, which may be rand supportive in the coming months.
"We think it will be a close call, but the Reserve Bank may not cut on Thursday, preferring to skip a meeting and wait for November," Rand Merchant Bank (RMB) analyst John Cairns said.
Although the rand could experience some weakness ahead of consumer inflation data set to be released this week, further rand losses could be contained amid an only slightly worse than expected current-account deficit, released last week. The deficit amounted to 2.4% of GDP in the second quarter from 2% in the first.
SA will post notably narrower current-account deficits in the coming quarters, analysts at BMI Research said.
"While investment income and transfers to the Southern African Customs Union will act as a drag on the country’s external account position, we expect continued goods trade surpluses will persist, after the goods trade position swung back into positive territory in 2016," BMI said.
The current account deficit is expected to be 2.7% in 2017 and 3% in 2018.
A lower deficit means government and companies need to borrow less in foreign markets, which is supportive of the local currency.
At 3.32pm the rand was at R13.2668 to the dollar from R13.1696, at R15.8527 to the euro from R15.7032 and at R17.9859 to the pound from R17.8662.
The euro was at $1.1949 from $1.1925.