Rand weakens as markets shift focus to global growth

The rand was weaker against the dollar on Wednesday afternoon as global growth prospects continued to hog the spotlight. 

Slightly improved local economic data failed to move the rand as global economic growth worries follow a decline in purchasing managers’ index (PMI) data from major economies. In SA, however, Standard Bank’s PMI for June rose to 49.7 points from 49.3 in May and the SA Chamber of Commerce and Industry business confidence index edged slightly higher in June to 93.3 points from 93 in May.

The possibility of a slowdown in global economic growth supports the likelihood that major central banks will cut interest rates in 2019.

Director and head of emerging-market strategy at TD Securities, Cristian Maggio, said a dovish turn by major central banks had supported emerging-market currencies. However, that may have a negative effect on those currencies in the long run.

“If major central banks go into an easing spree on the back of a poor macro-economic environment, the underlying reason major central banks may need to ease rates is negative. So you can expect the market to focus on the two different aspects of the chain at different times. At the moment the main focus is on easing interest rates, which is seen as positive for emerging markets,” Maggio said.

“If macroeconomic data from major economies in the coming months continues to support the need for rate cuts, this would confirm that there is an economic slowdown and even recession risk, and the market will not respond positively to that,” he said.

At 3.10pm the rand had weakened 0.12% to R14.1113/$ and 0.19% to R15.9401/€, while it was flat at R17.7628/£. The euro was little changed at $1.1284.

Gold was flat at $1,417.16/oz while platinum had gained 0.11% to $834.63. Brent crude was up 1.13% to $63.08. 

The benchmark R186 government bond was stronger with the yield falling four basis points to 8.12%. Bond yields move inversely to bond prices.

- BusinessLIVE