Africa-Press – South-Africa. The rand broke through the psychologically important R18/$ level for the first time in just over three months on Thursday morning, boosted by positive US data, along with hopes that Chinese stimulus will offer support to commodity prices.
The local currency reached R17.99/$ in mid-morning trade but was trading about 0.6% firmer at R18.03 at 11:50. This comes from general dollar weakness after data showed on Wednesday consumer inflation cooled at a faster pace than expected in June. Analysts said while markets are still expecting a hike from the US Federal Reserve in July, another hike in September is looking hard to justify.
“The short-term move on the rand aligns predominantly with recent US inflation data rather than factors domestic,” said IG SA senior market analyst Shaun Murison. A jump in key export commodity prices catalysed by the prospect of further Chinese stimulus and a softer dollar would have further benefitted the rand, he said.
Gold was up marginally at $1 964.80/oz just before midday, while platinum was faring better, adding more than 1% to $968.10. Brent crude was up a little at $80.25 a barrel.
“Disinflation both locally and abroad is suggesting that we are possibly nearing the top of monetary tightening cycles in a few major economies, possibly our own as well,” said Murison. “This is helping fuel some risk on trade in the near term which is further benefitting the rand.”
Earlier on Thursday, data showed China’s exports fell 12.4% year on year in June, the fastest pace since the onset three years ago of the Covid-19 pandemic, with analysts downgrading their projections for the world’s second-largest economy for the rest of the year, Reuters reported.
Standard Bank executive for rand and emerging market spot trading Warrick Butler said in a morning note that it appears the switch between inflationary into recessionary fears is now past equilibrium and more focus is being placed on growth data, especially in China. “With a very real slow down there, a lot of attention is going into the ruling party’s ability to support the economy,” he said.
Next week’s Reserve Bank meeting will now be the main focus locally, and an expected 25bps hike is most certainly still on the cards, said Butler. “After the January policy misstep, I cannot see Mr Kganyago [giving] up his coveted insurance card next week.
“It may mean they start cutting sooner than the market expects next year, but you really want to try and make sure inflation is no longer a raging issue. The economy is going to creak along regardless,” said Butler.
Currency strategist at TreasuryONE André Cilliers said in a morning note that there have been some warnings that markets might be getting ahead of themselves over the Fed’s future rate path, and focus will be on US producer inflation numbers – which are due at 14:30 SA time.
Cilliers added while the rand is likely to track dollar moves, the market did see some fairly good demand for dollars late on Wednesday as importers took advantage of the better hedging levels.
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