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Steady rand eyes US rates move for direction

Cape Town – The rand is currently range-bound between R14.20 and R14.40 to the dollar, ahead of the US Federal Reserve announcement on Wednesday, which could affect its levels.

That’s the analysis from RMB analyst Isaah Mhlanga on Monday, who said that since Brexit there has been no major shift in rand sentiment.

“We expect this trend to continue this week,” he said. “The rand is little changed from last week’s opening levels; it opened at R14.30 to the dollar, R15.69 to the euro and R18.78 to the pound.

“Should the Fed indicate appetite for a hike in September, expect the rand to sell-off, especially given that it failed to push lower than 14.30 for any meaningful duration.

“Although the market does not expect the Fed to change its policy rates, this meeting will be closely watched for any clues on a September rate hike,” he said.

Mhlanga said Fed chair Janet Yellen is likely to sound hawkish, and to keep the option of two rate hikes this year, especially because the Brexit vote has had no impact on financial markets. "Other than the disappointing non-farm payrolls data in May, US macroeconomic data has been strong.”

Umkhulu Consulting’s Adam Phillips said on Monday that the earlier part of the week could see the rand stay slightly on the back foot.

“Then, the press briefings following the various central bank meetings will hopefully give us a clearer picture as to its direction,” he said.

“Although I think the rand has had a good run, it might be there is still appreciation to come in the short term,” he said. “It is not going to receive much help from the commodity or bond market today.

“Even the oil price has weakened, which has been a negative for emerging market currencies in the past. It will be interesting to see how yield players react this week.”

RMB analyst Deon Kohlmeyer expects a quiet start to the week ahead of the Fed announcement, with all the local economic data only due for release on Thursday and Friday and no US data out on Monday.

He said SA’s bond weakness was mainly due to dollar/rand being unable to sustain the break of 14.30 and this failure may now result in a move back to the 14.50/65 range this week.

“Friday saw the R186 revert to the recent support area of between 8.85% and 8.80%, which has held twice already now, as it weakened nearly 10 points on the day.

“National Treasury gambled slightly with their new I2029 ILB, which made its debut in a period where the previous auctions have been under-allocated. It paid off though as total bids were back to over R1.5bn and almost R400m of the I2029 was issued at 1.85% which is a realistic level.

“The fact that inflation breakeven levels are relatively low at present also helped somewhat.”

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