Global Courant 2023-05-03 13:04:57
The rand continued to lag in early trading Wednesday (May 3); however, there was little movement in the broader market as investors await decisions from the US Federal Reserve.
According to Reuters analysis, dismal US job data caused the dollar to trail behind ahead of an expected Fed interest rate announcement that is poised to set the tone for global markets.
According to Annabel Bishop, chief economist at Investec, the US Fed is expected to signal that it has ended its cycle of rate hikes or at least paused for a significant amount of time to feed through the delayed effects of previous hikes. .
“With a lag of about two to three-quarters between rate hikes and the impact on the economy, last year’s cycle of rapid US interest rate hikes…said Bishop.
The Fed is widely expected to raise rates by 25 basis points by the end of its meeting on Wednesday.
Bishop said there is a 30% chance, taking into account implied Fed Funds futures, of a further 25 bps hike in US interest rates this quarter, and in H2.23 markets do not expect rate hikes at all, nor in January 2024. .
“As of July this year, markets are already thinking that US interest rate cuts are more likely than hikes, while by November a 25 bps cut has been fully priced in by markets.”
Reuters added that no economic data will be released from South Africa today; as a result, it will reflect the movements of overseas markets.
Bishop said the rand was largely stagnant over the past week at around R18.30 per dollar.
Since the beginning of the year, Fed decisions have led to rapid and often unpredictable fluctuations in the rand. These variations are mainly based on a change in global risk appetite.
In addition to the uncertainty, the dollar has also been volatile in recent times. A weaker rand and more rate hikes in the US put the South African Reserve Bank in a more difficult position.
South Africa’s last rate hike came in March, when the SARB surprised the market with a 50 basis point hike, pushing the repo rate to 7.75% and the prime lending rate to a 14-year high of 11.25% .
SARB has remained steadfast in its goal of bringing inflation within its target range of 3% to 6%.
Many experts are now predicting a continuation of the walking cycle and little relief for the rest of 2023, with most analysts expecting a further 25 basis point increase.
On the domestic front, the usual suspects continue to shift the edge. Economists at Nedbank said several factors affecting local markets include:
Lower GDP growth forecasts due to load shedding; Eskom corruption allegations from former CEO; the decision of the Financial Action Task Force to graylist the country; Poor Q4 2022 GDP results due to ongoing blackouts; S&P Global’s credit rating downgrade; A disappointing cabinet reshuffle by President Cyril Ramaphosa earlier this year increased the size of the cabinet.
The rand is currently traded at:
R18.44/$ R20.33/€ R23.04/£
Read: Another tough month for businesses in South Africa
