Picture: REUTERS
Picture: REUTERS

The rand was firmer against the dollar on Wednesday as consumer inflation came in above economists' expectations, making it even less likely that the Reserve Bank will surprise markets with an interest rate cut on Thursday.

SA's currency was also supported as focus shifted to the US Federal Reserve's monetary policy decision later on Wednesday, with a 25-basis point cut in the Fed's target rate widely anticipated. Looser policy overseas supports demand for higher-yielding assets denominated in the rand. 

The Fed is expected to announce its interest-rate decision on Wednesday with markets pricing in a 56.5% chance of a cut, according to CME Group's FedWatch tool, on Wednesday morning.

The rand is the best-performing emerging-market currency over the past month, as expectations of global monetary policy easing improves appetite for riskier assets. It weakened earlier this week after attacks on Saudi Arabia's oil fields sparked a new round of risk aversion. 

The rand could reach R14.05/$ — a level it has not reached in almost two months — should the Fed opted to cut and the Reserve Bank keep the repo rate unchanged at 6.50%, Standard Bank currency dealer Warrick Butler said.

“A cut and dovish statement and it could be pile-on misery for the dollars as high-yielding assets are scooped up in a panic,” Butler said.

The consensus among 18 economists polled by Bloomberg is that the Bank will keep the rate unchanged. Four of the analysts said it would cut by 25 basis points. 

Consumer inflation accelerated 4.3% in August from a year earlier, up from 4% in July, data from Statistics SA showed on Wednesday. That's still below below the mid point of the Bank's 3% to 6%. The consensus was for consumer inflation to increase 4.2%, according to a Bloomberg poll.

At 10.06am, the rand had firmed 0.37% to R14.6427/$, 0.56% to R16.18444/€ and 0.59% to R18.2613/£. The euro had weakened  0.16% to $1.1053. In the first two days of the week, the rand fell 0.28%

Gold was flat $1,501.295/oz while platinum was down 0.15% to $938.83.

Oil prices slipped earlier on Wednesday, extending losses from the previous session after Saudi Arabia’s energy minister said the country would restore lost oil production by the end of September. Brent crude has since added 0.45% to $64.28 a barrel.

mjoo@businesslive.co.za