Picture: REUTERS
Picture: REUTERS

The rand was steady on Thursday afternoon, holding on to the 1.17% gain against the dollar it registered on Wednesday, with the market still pricing in a series of interest rate cuts by the US Federal Reserve.

Markets remain in wait-and-see mode ahead of the Jackson Hole conference on Friday, where Fed chair Jerome Powell is widely expected to either justify market expectations that two more Fed cuts are on their way, or disappoint them.

“Investors refuse to accept that more rate cuts aren’t coming and have priced in at least two more this year, with one at each remaining meeting being a coin toss,” said Oanda analyst Craig Erlam in a note. If Powell disappoints markets, “I will be shocked if the recession indicator doesn't flash red again, a punishment from the markets for the Fed not doing as its told”. 

Fed minutes on Wednesday indicated that it is not planning an aggressive interest-rate cycle, but the market is not convinced, and is still pricing in cuts that will increase the relative attractiveness of emerging-market bonds, including SA’s.

At 2pm, the rand was flat at R15.1775/$ and R16.8232/€, but had lost 0.11% to R18.435/£. The euro was flat at $1.1081.

The rand’s volatility has also eased a little, with the Turkish lira overtaking the rand as the most volatile emerging-market currency on a one-week basis on Thursday.

Locally, the National Treasury has said it wants government departments to draft plans to slash their budgets for the next three years, beginning with a 5% cut in 2020, and 6% and 7% for the consecutive years thereafter.

This local news had little effect on the currency, said Standard Bank currency trader Warrick Butler, and downside risks to the rand persisted. The market is not gullible enough to hang on to something that thin or precarious. That movie has been shown far too many times,” he said. “We all know the shark eats the swimmer.”

The rand is probably just feeling the effects of a big loss in August, and is finding support from a quieter global environment and activity related to trading in the dollar, Butler said.