Rand gets a reprieve as US dollar loses steam

10 December 2018 - 11:14 By Andries Mahlangu
A slowdown in the US economy could persuade the Fed to hold off on raising interest rates, to the benefit of the rand and other high-yielding emerging-market currencies.
A slowdown in the US economy could persuade the Fed to hold off on raising interest rates, to the benefit of the rand and other high-yielding emerging-market currencies.

The rand held up relatively well on Monday morning, courtesy of a weaker dollar which reeled from last week's disappointing US nonfarm payrolls data.

The data fed into the narrative that the US economy could be losing momentum. The scenario could persuade the US Federal Reserve to hold off on raising interest rates.

The pause button on US rates could benefit the rand and other high-yielding emerging-market currencies.

But the near-term outlook for the rand remains clouded, partly because of a lingering trade dispute between the US and China, which is seen posing a potential risk on the global economy.

The uncertainty on the US-China tariff spat continues to unsettle risk assets. Emerging markets, including SA, are vulnerable to equity and bond outflows when global sentiment turns sour.

Over the past week, foreign investors dumped local equities to the value of R7.4bn, according to JSE data. Net bond sales by non-residents amounted to R1.5bn.

"SA begins its wind-down for 2018, with this being the last real week of economic activity before the productive sectors and building contractors close for the holidays," said Mercato Financial Services analyst Nico du Plessis.

"Along with it comes the associated moderation in liquidity conditions - and for the rand this can mean a volatile time depending on the news flow and events."

Last week, the two largest economies gave themselves a 90-day window period within which to find common ground to resolve their tariff dispute.

At 9.44am, the rand was 0.54% better at R14.096 to the dollar. It had gained 0.17% to R16.1166 to the euro and 0.32% to R17.9476 to the pound. The euro was 0.26% firmer to the dollar at $1.1433.

Local bonds were weaker in early trade, with the yield the benchmark R186 bond last bid at 9.085%, from 9.03%.

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