Roller-coaster rand likely to remain turbulent
The rand’s one-week implied volatility was at 15.55% on Monday afternoon, the highest among major currencies tracked by Bloomberg
The rand was weaker against the dollar on Monday afternoon, after a slight recovery in earlier trade, while an analyst has warned that the currency is likely to remain volatile as global risk factors weigh on sentiment.
Investec economist Annabel Bishop said on Monday that the rand’s volatility is likely to continue in August as the period from May to September generally sees investors shy away from riskier assets.
Subdued economic data and fears of a slowdown in global economic growth have bolstered expectations that major central banks will likely take on a more dovish stance. Markets have partially priced in three potential interest-rate cuts by the US Federal Reserve (Fed) by the end of 2019.
This week, investors set their eyes on the Fed meeting minutes and the Jackson Hole economic symposium as the markets await some direction regarding US monetary policy.
Although Fed chair Jerome Powell had previously downplayed expectations that the US will begin an easing cycle, the protracted US-China trade war and economic growth concerns may affect the Fed’s decision on monetary policy.
“Market expectations over a September rate cut should rise if the minutes are presented with a dovish tone. However, some are still questioning whether the Fed will move forward with further rate cuts given how US retail sales grew … in July and the latest jobs report suggested moderate growth,” research analyst at FXTM Lukman Otunuga said in a note.
The rand’s one-week implied volatility was at 15.55% on Monday afternoon, the highest among major currencies tracked by Bloomberg. Implied volatility is a measure of investors' expectations of the movement of a currency over a certain period, and therefore is a gauge of risk.
According to Investec’s base case, the rand could recover to average R13.90/$ — a level it reached in July — in the fourth quarter of 2019 assuming that SA keeps its investment grade from Moody’s Investors Service and if global risk-off sentiment abates.
“The last and first quarters of the calendar year usually see emerging-market currencies strengthen as many northern hemisphere market players return from vacation and riskier, higher-yielding assets typically return to favour. The rand could strengthen a substantial amount in the fourth quarter of 2019 on this seasonal effect, and in the first quarter of 2020,” Bishop said.
At 2.58pm, the rand had weakened 0.16% to R15.3378/$ and 0.22% to R17.026/€, while it was 0.19% firmer at R18.5771/£. The euro was flat at $1.1101.
Gold had fallen 1.02% to $1,497.75/oz and platinum 0.36% to $846.78/oz. Brent crude was up 0.78% at $59.12 a barrel.