Cape Town - The Paris attacks have not helped the rand and emerging market currencies could have a torrid time this week, according to Wichard Cilliers, director and chief dealer at treasury services company TreasuryOne.
"The sentiment at the moment is for further rand weakness," said Cilliers. He added that internationally the US Federal Reserve can throw some extra wood on the hiking fire, with the release of its minutes of October.
"As we saw with the last meeting, a hawkish Fed will send the dollar stronger and emerging market currencies weaker. Should the Fed minutes be hawkish, which is expected, we can see the rand under further pressure," he said.
This week also brings the release of the South African CPI and the SA Reserve Bank's MPC meeting on Wednesday and Thursday respectively.
"Although CPI is expected to be below 5%, well within the inflation targeting band of Sarb, the real attention will be focused on Thursday interest rate decision," said Cilliers.
"A lot are riding on this decision whether the MPC wants to front-run the Fed and hike early or wants to protect the rand in a way and hike at this meeting. The other side of the coin is that the MPC sticks to policy and with inflation currently at acceptable levels, keep interest rates steady with a hawkish undertone, which will indicate a possible hike in January. At this stage, it seems that it is an each-way bet."
Cilliers said the huge elephant in the room is that these are not normal times in economics.
"With this being uncharted territory, anything is possible and this uncertainty has grabbed hold of the market. Thus the recent dollar strength, apart from the rate hike expectation, could also be seen as some safe haven play," he explained.
"With the dwindling economic growth and dovish comments from Draghi last week, it is expected that another bout of stimulus is around the corner. We might well have a situation of the US Fed hiking rates and the ECB adding more stimulus, which will have a great impact on the euro/dollar parity becoming a reality in the longer term.