Rand could push to R13.50/$ if market prices in deeper Fed cuts

12 July 2019 - 16:29 By karl gernetzky
Picture: REUTERS
Picture: REUTERS

The rand failed to breach a resistance level of R13.85/$ this week, but should it break through that, it could push to as much as R13.50/$ as markets price in potential US interest rate cuts, analysts said.

Emerging-market currencies have been boosted by the prospect of the US Federal Reserve cutting interest rates, with the market pricing in a 17.5% chance of a 50-basis-point cut later this month, Bloomberg data shows.

The market may increasingly price in a 50-basis-point cut, and all that stands in the way of this is US economic data between now and the Fed meeting, said Vanguard Markets managing partner Stephen Innes in a note.

The rand has also run hard in the past couple of weeks and consolidation could be in the offing, but for the moment the rand looks happy at the R13.90/$ level, TreasuryOne senior currency dealer Andre Botha said in a note on Friday. “The rand needs to break the R13.85/$ convincingly and sustain the break before the momentum suggests a run to the R13.50 level.”

At 2.25pm, the rand was flat at R13.9575/$, R15.7062/€ and R17.4936/£. The euro was also little changed at $1.1252.

All eyes next week are on the Reserve Bank interest-rate decision on Thursday, with the consensus among 17 analysts polled by Bloomberg for a 25-basis-point cut. An interest-rate cut could make local bonds less attractive to international investors, which would put pressure on the rand.

Some focus is also on Eskom, with reports during the week suggesting the Public Investment Corporation (PIC) is offering a debt-for-equity swap to the embattled power utility.

Finance minister Tito Mboweni said this week that progress was being made in planning to deal with the utility’s debt mountain, and further details on funding would be available on July 23, when a special appropriations bill will be put before parliament.