Rand weaker as higher interest rates loom
A stronger dollar creates a negative environment for the rand as the JSE all share surges and bond yields rise
The rand weakened 1.4% against the dollar on Wednesday afternoon in a stronger dollar environment, despite the JSE surging 3%.
Volumes on the JSE were on the low side, just exceeding R10bn a few hours before the close, indicating that offshore investors have not entered the market on a large scale.
The market was eyeing the release of non-farm payroll data in the US on Friday, with a better-than-expected number set to boost the dollar as it would indicate a stronger US economy.
The South African Reserve Bank earlier indicated that local interest rates are set to rise within the next two years, as consumer inflation could reach the upper band of the Bank’s 3% to 6% inflation target. The Bank’s monetary policy committee (MPC) will have its last meeting of the year from November 20 to 22.
“With no real impetus in markets at the moment, we expect the rand to trade in narrow bands while we await Friday’s non-farm payroll numbers,” TreasuryOne senior dealer Andre Botha said.
He added that the movements in the rand for the rest of the year will play a vital role in the Bank’s rate decision. “With concerns expressed about inflation, it has hinted at a hike to front run some of the inflation.”
The dollar found support from comments by US President Donald Trump that a trade agreement with China is likely, which eased concerns about an escalating trade spat between the two nations which has been affecting global growth negatively.
At 2.45pm, the rand was at R14.8074 to the dollar from R14.6042, at R16.7889 to the euro from R16.5607, and at R18.8976 to the pound from R18.5551. The euro was at $1.1338 from $1.1343.
Local bond yields were higher with the R186 bid at 9.35% from 9.27%. The US 10-treasury was last seen at 3.1545% from 3.1223%.