The domestic took a hammering yesterday, falling 2.3% to R17.97/$1 by 6pm, its lowest since 11 September. Picture Henk Kruger / Independent Newspapers
The rand plunged to its lowest in one month, falling more than 2% to nearly breach the R18-mark to the US dollar yesterday as the greenback continued to strengthen amid Trump-driven optimism and anticipated economic data.
The domestic currency took a hammering yesterday, falling 2.3% to R17.97/$1 by 6pm, its lowest since 11 September, as the dollar rose to its highest level since early July, extending a six-week winning streak after a nearly 0.6% gain last week.
According to market analysts, "Trump trades" remained prevalent as traders anticipate that US President-elect Donald Trump’s policies on taxation and deregulation will favour businesses and likely drive inflation higher, limiting the US Federal Reserve’s capacity to lower interest rates.
With support for Trump coming partly from the US mid-West, previously a strong manufacturing hub, heavy tariff increases are expected on US imports from next year, providing some uncertainty for the outlook of the year ahead.
Wichard Cilliers, director and head of market risk of TreasuryONE, said the dollar’s rise has weighed on global markets, especially commodities, as investors await clarity on US policy.
“Market sentiment remains fuelled by expectations that Trump's policies, particularly tax cuts and deregulation, will support businesses, potentially driving inflation and limiting the Fed's ability to cut rates,” Cilliers said.
“The probability of a Fed rate cut in December has fallen to 69%, down from 80% last week. This week's economic data, including consumer price inflation, producer price inflation, and retail sales, along with Fed officials' comments, will offer further insights into the Fed's direction.”
Statistics South Africa will today release data for consumer price inflation for October after consumer prices further fell more than expected to 3.8% in September, prompting calls for the SA Reserve Bank to cut interest rates aggressively later this month.
The rand has tended toward the R17.00/$1 mark this quarter in quieter periods but has has now moved far from this major resistance level.
Investec chief economist Annabel Bishop said also undermining the rand this quarter has been economic weakness in China, a key trading partner for South Africa, with the world’s second largest economy not seen to have sufficient stimulus measures to stem the softness in activity.
Bishop also said that in addition, planned deportation of illegal immigrants from the US, and a substantial tightening against future illegal immigration was another key support area expected to see a flurry of policies set to be enacted.
“However, before then, for this quarter, the rand is expected to see further strength in the run up to and over the turn of the year. Global financial market risk aversion typically diminishes as market players tend to become more risk on in the period,” Bishop said.
“The US dollar has also seen some strength, and with the rand both an emerging markets and commodity currency, the weakness in commodity prices (on safe haven buying) has negatively affected the domestic currency as well.
“A US interest rate cut on 18th December would add to rand strength, supporting market risk taking, although the quarter remains underpinned by some weakness on worries over the US next year, which could affect the rand forecast.”
BUSINESS REPORT