Rand on back foot at start of week

Cape Town - The rand started out the week on the back foot against the dollar, trading above R12 to the greenback.

At 10:10, the local currency was trading at R12.04 against the dollar, after opening at 11.97/$.

According to Andre Botha, a dealer at TreasuryONE, the rand had strengthened somewhat on Friday on news that the prosecution of former President Jacob Zuma would continue. But it again weakened quickly. 

“The reversal was brief as the rand broke above the R12/$ level quite quickly as the US dollar flexed its muscle this [Monday] morning in anticipation of the Federal Open Market Committee meeting and interest rate decision later on this week.”

The FOMC is set to decide whether or not to change its benchmark interest rate on Wednesday. The meeting will be chaired by Jerome Powell, who took over from former Fed chair Janet Yellen earlier in the year. 

“There are enough whispers and uneasiness in the market surrounding a possible inflation overshoot from the US that the Fed can indicate that they will look to hike rates more aggressively,” said Botha.

Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions, says a rate hike of 25 basis points is widely anticipated.

“If it materialises, it would mark the first of three to four expected hikes this year.”

Moody's 

Ratings agency Moody’s is meanwhile set to announce on Friday whether or not it will downgrade SA’s sovereign credit rating. 

It is the only major ratings agency to not have downgraded SA's sovereign rating to non-investment grade. Moody's currently has it at one notch above junk. 

Botha says SA may get a reprieve on Friday, due to recent political developments in SA and budget consolidation.

But should the agency downgrade SA to non-investment grade, the country would automatically fall out of the World Government Bond Index. 

If this happens, billions of rands are expected to leave SA, as foreign investors and index tracking funds sell their local bonds. 

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