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Rand breaks below R12.60/$ on poor US data

Jun 14 2017 15:19
Fin24 with Bloomberg

Cape Town - The rand strengthened almost 1.5% on Wednesday after US CPI and retail sales came out worse than expected.

This disappointing data has placed emerging market currencies on the front foot ahead of the Federal Open Market Committee (FOMC) meeting this evening in the US, said TreasuryOne in a snap note to clients.

The local currency was trading at R12.61 to the US dollar by 15:17 from its overnight close of R12.76/$. It touched R12.59 shortly after the news that the consumer price index in May fell 0.1% on a month-on-month basis following a 0.2% expansion in the previous month.

This greater-than-expected deceleration in US consumer price inflation could give some pause to Federal Reserve officials as they consider further interest rate increases.

Bloomberg reports that while the data can be volatile month to month, often depending on energy and food prices, the underlying measure of inflation has slowed to 1.7% from 2.3% in January, raising the risk that price gains will drift further from the Federal Reserve’s target.

The decrease in the headline index was led by energy - including the biggest drop in gasoline since February 2016 - though prices also fell in apparel, airfares, communication and medical-care services.

Retail sales dropped 0.3% after a 0.4% increase in the prior month.

The Federal Reserve Monetary Policy Committee concludes a two-day meeting in Washington later on Wednesday, where they are widely expected to raise the benchmark interest rate for a second time this year amid a tightening labour market.

Additional hikes, however, may be contingent on a rebound in underlying inflation.

Local currency analyst John Cairns expects the Fed to hike interest rates on Wednesday evening.

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rand  |  markets  |  currencies

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