Markets are keeping a firm eye on Federal Reserve for a clue on rate cut. Photo: Reuters
The rand remained constrained against the dollar in a risk-averse market on Thursday as investors keep a watchful eye on data in the US for clues to when its Federal Reserve will cut interest rates,
By 11.59am, the rand was 0.62% weaker at R18.56 to the dollar.
Bianca Botes, a director at Citadel Global, said market consolidation saw the rand give back some ground during trade yesterday.
This was followed by a rather muted overnight session as markets look for further cues from the Federal Reserve and started to gear up for the US inflation numbers, which were due for release next week.
The US Dollar Index had steadied after a rebound earlier in the week, while gold and oil started the day stronger.
“On the data front today, we will keep an eye on the BoE (Bank of England) interest rate decision, followed by local manufacturing production and US initial jobless claims, she said.
The rand was steady at R18.56 against the dollar, R19.96 against the euro and R23.20 against the pound.
Annabel Bishop, the chief economist at Investec, said on Wednesday that the the rand had remained constrained by risk-averse sentiment, with the US stretching out its launch of its anticipated interest rate cut cycle has had a negative effect on emerging markets (EM), their currencies and their capital flows.
Volatility had been significant in emerging markets, including currencies, as the US Federal Reserve funds futures had seen probabilities continuously fall for an early US rate cut this year, now pulled into quarter four 2024, she said.
Institute of International Finance (IIF) noted in its Global Debt Monitor report this quarter that debt in EM had grown to $105 trillion (R1 949 trillion), doubling over the past decade, adding to concerns around global financial stability.
The largest growth in EM debt had come from India, Mexico and China, while for South Africa, the IIF noted South Africa needed an improvement in investor confidence after a lengthy period of capital flight.
Bishop said: “Global financial flows into EM markets will benefit the rand when the US interest rate cut cycle begins, with historically very substantial rand strength being seen. We expect the rand to pull towards its PPP (ppurchasing power parities) (of R15.00/USD over the next few years.“
She said the expected case rand outlook was also dependent on the outcome of South Africa’s the national election this month.
“The expected case is the ANC gets around 45% of the vote with and ANC/IFP (plus ACDP and some smaller parties if necessary) national coalition,” she said..
Bishop said what was also key for the rand was trade performance, with the terms of trade weaker for quarter one 2024. Load shedding was higher in quarter one 2024 than in quarter four 2023, while port congestion eased but was not cleared, and weak commodities prices added to the malaise for the rand.
The JSE index was slightly down, around 77 020 points, according to Trading Economics, but hovering one-year highs, as traders continued to assess the likelihood of rate cuts by the Federal Reserve and the ongoing earnings season.
On the domestic front, manufacturing data for March would be released later in the day. Among individual stocks, Sappi underperformed with a more than 3% drop, after reporting lower sales for the second quarter. It was followed by Northam Platinum and Pick n Pay, with losses of more than 2% each.
By contrast, RCL Foods was the top performer, rising nearly 5%, alongside Karoo (+1.8%). In corporate news, Spar Group announced on Wednesday that it had received approval for a secondary listing on A2X Markets, with its shares set to be tradeable on the platform from May 15.
Gold
Gold prices held around $2 310 (R42 884) per ounce, as investors awaited US economic data to seek hints on potential timing for Federal Reserve’s rate cuts, Trading Economics said.
Oil
Brent crude futures rose toward $84 per barrel, extending gains from the previous session as official data showed a decline in US crude stockpiles, signalling tighter supply.
Energy Information Administration data showed that US crude inventories fell by 1.361 million barrels last week, reversing from a 7.265 million barrel jump in the preceding period as refinery activity increased, Trading Economics said.
BUSINESS REPORT