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Seoul – The rand followed emerging-market currencies and stocks, which fell for a second day after hawkish comments from a Federal Reserve official strengthened speculation there will be a US interest-rate increase within the year.
The rand was trading 1.67% weaker at R13.59 to the dollar at 06:45, while the pound was down 0.73% (R17.72) and the euro was down 1.03% (R15.33).
South Korea’s won and Taiwan’s dollar led declines developing nation currencies following remarks on Sunday from Fed vice chairperson Stanley Fischer that the US economy is already close to meeting the central bank’s goals and growth will pick up.
The market’s focus will now be on Janet Yellen’s comments later this week in Jackson Hole, Wyoming, where top global central bankers gather annually.
“Investors are having a knee-jerk reaction towards the hawkish Fed comments,” said Danny Wong Teck Meng, chief executive officer at Areca Capital in Kuala Lumpur. “We will be watching out for Yellen’s comments on Friday. We hope the Fed could raise rates soon, and that will give markets a sense of certainty moving forward.”
Rand could head to R13.75/$
The rand closed in New York below R13.50/$, but has gone through the next resistance level of R13.55 to sit now at R13.59, said Umkhulu Consulting’s Adam Phillips on Monday.
“I think there is a good chance that we could see it trade up to R13.75/$ this week. Any push higher will be on the back of strong US data, while a move back into the 13.20-13.50 range will be because economic news from the US will relegate the chance of a US hike until sometime next year.
“I don't think the rumblings between President Jacob Zuma and the National Treasury are causing any of the movement, just yet. If it was, operators would be trying it a lot higher.
“Wednesday sees the release of local inflation data, with PPI coming out the next day," he said.
“Maybe another possible reason for emerging market weakness is that Moody's cut it outlook on Aussie banks to negative, which is hurting both Antipodean currencies today and having a knock on effect to other emerging market currencies," he said.
Currencies
The MSCI Emerging Markets Currency Index dropped 0.4% as of 11:40 in Hong Kong, extending its decline since August 18 to 0.9%. The gauge has advanced 5.9% this year.
The won retreated 0.9% against the greenback, after falling to as low as 1 128.85, the weakest level since July 28. Taiwan’s dollar slid 0.7%, while the ringgit declined 0.5%.
The Bloomberg Dollar Spot Index, which measures the greenback against 10 leading global currencies, rose 0.5%. The probability of a rate increase by the end of the year rose to 51% on August 19 from 42% a week earlier.
“The latest comments from Fed officials, including those from vice chairman Fischer, have boosted US rate-hike expectations,” said Jeon Seung Ji, a currency analyst at Samsung Futures in Seoul.
Stocks
The MSCI Emerging Markets Index of stocks slid 0.7%. The gauge closed on Thursday at the highest level since July 23, 2015. The developing-nation gauge has advanced 14% this year. It’s valued at 12.5 times 12-month estimated earnings, and that compares with 4% gain in the MSCI World Index which trades at multiple of 16.3.
All 10 industry groups in the emerging-market index fell. Zhuzhou CRRC Times Electric was set for the biggest decline since January in Hong Kong after ratings were cut by Credit Suisse AG and UOB-Kay Hian.
The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong dropped the most in more than two weeks, while the Shanghai Composite Index fell 0.6%.
Mega Financial tumbled 6.5% in Taipei after Taiwan’s government said it will probe the company’s unit that was fined $180m for violating anti-money laundering laws by a US regulator. The Taiex Index headed for the lowest close in five weeks. South Korea’s Kospi Index slid 0.7%.
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