Cape Town – Strong US jobs numbers hit the rand over the weekend, but the currency strengthened again on Monday to open trade at R13.70 to the dollar.
“The rand managed to make its way down to 13.61/$ on Friday, but a strong US Job’s number caused it to give away gains, and it touched 13.80 briefly before reverting to 13.70, where we are this morning,” Wichard Cilliers, head of dealing and director at TreasuryOne, said on Monday.
“The strong jobs number gives the US Federal Hawks some impetus to push for a rate hike later this year,” he said. “However, we need to see other improvements in the US economy before we can honestly believe a rate hike is necessary, the US labour market has continually done well, but that’s only one data point of many that the US Fed needs to look at.”
Umkhulu Consulting’s Adam Phillips said yield players didn’t seem to be too phased about the strong jobs numbers.
“They waited until importers had bought and noted that a wall of export proceeds were at R13.85 before pushing it back below 13.70,” he said on Monday. “It looks like they are focusing on the little support for the dollar versus the rand until 13.15, on a technical basis.”
“While bets on a rate hike have moved up a smidge, it looks like operators see Brexit and Chinese slowdown as key to the way forward. Therefore, until something major happens the yield players are in the box seat,” he said.
Fair value of rand/dollar is between R11.50/$ and R12.50/$
Phillips said that with the drop in gold price on Friday, “we should see a weaker rand, but I doubt we will see any depreciation today”.
RMB analyst Isaah Mhlanga said on Monday that the bias is still for some gains as the global search for yield continues.
“Remember that dollar/rand’s fair value is between R11.50 and R12.50 according to our models, thus the continued strength of the unit is not inconceivable,” he said. “Our view is even stronger over a two to three horizon, where we see dollar/rand strengthening to R13/$.
“However, we remind you that short-term risks lie in plain sight. Last Friday’s strong US non-farm payrolls – 255 000 against expectation of 187 000 - indicates that the US economy continues to create jobs.
“This implies that the US Fed may hike rates as soon as in September, but December looks more likely as the BoE (Bank of England), BoJ (Bank of Japan) and ECB (European Central Bank) are doing the job for the Fed by loosening monetary policy.”
Cilliers said equities “are all up this morning in Asia, and I’d expect this to filter into the local market as well. I’d expect us to trade between 13.55 and 13.80 today, with a bias to the downside”.
Elections won't spur policy shifts
Looking back at the elections week, Mhlanga said the rand “strengthened as the results trickled in, breaking below the psychological R14 level to the dollar”.
“It also gained against the sterling and the euro following the BoE’s decision to cut rates and institute more stimulus to alleviate the impact of Brexit.”
Fitch raised concerns last week that the poor results by the ANC in Tshwane, Johannesburg, Nelson Mandela Bay and Cape Town (still controlled by the DA) could usher in populist policies and derail fiscal consolidation plans, explained Mhlanga.
“This could be the case if the resultant coalition governments lead to policy paralysis in which no agreement on policies occurs, thus delaying implementation.
“Although it is difficult to predict the course of political developments at this point, our base case is that there will not be any policy shifts that threaten fiscal consolidation plans.”
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