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Published On: Mon, Aug 15th, 2016

Rand gains on reduced US rate increase expectations

THE rand was firmer against the dollar on Monday afternoon after the greenback weakened, as investors expected no interest-rate increase by the US Federal Reserve before the US presidential election.
Disappointing US retail sales data announced last Friday also diminished expectations that the Fed would raise rates any time soon.

US retail figures on Friday showed no growth in July, while economists surveyed by The Wall Street Journal had expected growth of 0.5%, Dow Jones Newswires reported.

Fed-funds futures, used by investors to place bets on central bank policy, are now showing a less-than-45% probability of a rate rise by December, according to CME Group, as reported by the newswire.

The Wall Street Journal dollar index inched down slightly on Monday, with the dollar last down 0.4% against the yen and 0.2% against the euro, the newswire said.

At 3.31pm, the rand was at R13.3356 to the dollar from R13.4668 at the previous close.

It was at R14.9120 against the euro from R15.0551 previously, and at R17.174 against the pound from R17.4275 previously.

The euro was at $1.1183 from $1.1169 previously.

US consumer price index data, due for release on Tuesday, is also in focus as if it comes in lower than expected, it is also bound to boost expectations for lower US interest rates for longer.

Meanwhile local markets are waiting for local June retail sales data on Wednesday, with expectations for a 3.9% year-on-year increase from 4.5% in May.

Bidvest Bank analysts said local sales growth had accelerated to a multiyear high of 4.5% year on year in May, but factors such as weak employment dynamics, soft credit extension and “sticky inflation” for essential goods, questioned the sustainability of such strong growth.

Globally, markets are waiting for UK inflation and retail sales data, which will provide more clarity on how the British economy is fairing after the Brexit vote in June.

The US Fed’s federal open market committee minutes from the July 27 meeting were scheduled to be released on Wednesday.

Meanwhile, Standard Bank trader Warrick Butler said the rand’s close last week below R13.55 still boded well for its future performance relative to the dollar.

There was still a “strong feel-good factor for the currency”, and SA’s rates still provided attractive returns, he said.