Rand struggles for direction as markets absorb dire economic reports
The rand struggled for a clear direction on Tuesday, as markets digested poor manufacturing data that could indicate that looser monetary policy is on the way from global central banks.
Weak purchasing managers' indices (PMIs) for the US, EU and the UK released this week fuelled expectations that central banks may soon cut interest rates to bolster economic growth. The Reserve Bank of Australia on Tuesday cut its rate by 25 basis points to 1%. In June, the US Fed hinted at the possibility of loosening monetary policy, citing the US-China trade war and slow economic growth.
The US and China agreed to recommence trade negotiations after a meeting at the G20 summit last week. The trade truce boosted risk appetite, pushing the rand to its best level in three months on Monday. The US has since threatened to impose tariffs on $4bn worth of EU goods over an aircraft dispute.
The rand looked set to benefit from loose monetary policy, Mercato Financial Services analyst Nico du Plessis said in a note, adding that while the rand could still move below R14/$, investors may need to be patient.
“While global sentiment has received a boost from positive trade headlines and could support a rebound in activity in the coming months, the outlook for global growth remains fragile and the market is becoming increasingly confident that global central banks will step in to help shore up growth,” Du Plessis said.
Investors will be closely watching the US nonfarm payroll figures for May which will be released on Friday for indications of the size and timing of Fed cuts.
At 3.41pm the rand was flat at R14.1276/$, R17.8547/£ and R15.9621/€. The euro was a little firmer at $1.1298
At the same time gold had gained 0.56% to $1,391.74/oz while platinum had fallen 0.87% to $825. Brent crude had fallen 1.06% to $64.47 a barrel. On Monday, oil cartel Opec and its allies agreed to extend supply cuts until March 2020.