Rand steady, but long-term outlook remains cloudy
The local currency has steadied on Friday morning as focus shifts to upcoming risk events, including next week’s US Federal Reserve policy announcement
The rand was little changed on Friday morning, looking set for a second day of range-bound trade, as markets waited for fresh catalysts.
At 9.30am the rand was flat at R14.861/$ and R16.7598/€, while it had firmed 0.13% to R18.8231/£. The euro was unchanged at $1.1277.
Focus is shifting to next week’s US Federal Reserve meeting, amid much market speculation as to the planned pace of interest rate cuts in the world’s largest economy.
Interest-rate cuts by the Fed will boost emerging-market currencies, although analysts warn domestic political risks and the US-China trade war continues to threaten sentiment, and therefore the outlook for emerging market currencies.
Although the rand was still likely to be in a range between R14/$ and R14.50/$ by the end of 2019, the outlook has shifted towards a weakening of the currency, said Nedbank Corporate & Investment Banking analyst Walter de Wet. Signs of intent to interfere politically with the Reserve Bank and SA’s economic growth situation was weighing on the rand, although the former issue was likely to just be political noise, De Wet said in a note.
Local focus is shifting to next week’s consumer inflation data on Wednesday, as well as the forthcoming state of the nation address (Sona) on Thursday, said Peregrine Treasury Solutions corporate treasury analyst Bianca Botes in a note. “With severe fluctuations in the local unit, short-term strength should be used as a buying opportunity as biases still lean towards a weaker rand by the end of 2019,” she said.
International focus remains on developments in the US-China trade war, with it still uncertain whether President Donald Trump and Chinese President Xi Jinping will meet later this month.
US retail sales data and manufacturing numbers for May, due out later in the day, will also be closely watched, as these might set the tone for next week’s Fed meeting.