The FED gave the clearest indication yet that a September rate cut is happening and the market went on an immediate tear!!!? Unfortunately that market was not the currency market as exchange rates hardly moved, this while equities surged with the S&P500 and Nasdaq indices registering their best daily gains since Feb. 2022.?
These are the mid rates at 5:55 today:
Brent Crude = $81.31 per barrel
- We can’t complain when Dollar weakness helps the Rand post gains but yesterday’s lack of movement in the currency market is probably a result of the outcome being fully priced in before the event.? We opened the day at R18.30 to the Dollar and actually made it to our best level of R18.18 by the early afternoon session, gains that we have pretty much held onto after the FED’s announcement last night.?
- There was a lot going on yesterday and for once all of it was Rand positive, or more specifically, Dollar negative.? The day started with the Bank of Japan out hawking most market participants’ expectations as they increased interest rates by 25bps which is their largest single increase since 2007.? This assertive move, along with the announcement of a future reduction in their massive bond buying program, saw the Yen notch up further gains against the Dollar as it touched 149.63, a far cry from its 38-year low of 161.96 on the 3rd of July.? The Yen’s continued advances against the Dollar put early pressure on the Dollar Index which was good for our exchange rate.?
- Then just as we were gearing up for the FED’s policy statement in we got surprisingly weak labour market data from the US which was able to capitalise on an already fragile Dollar by sending the Dollar Index down to 103.96.? The Wednesday before the monthly US jobs report on Friday always sees a privately run ADP jobs report, and while this is typically ignored by the market yesterday’s report was supposed to show an increase of 155?000 new jobs in July but only 122?000 were reported, and this sizeable miss to the downside was another hint that the US labour market is cooling.? Talk of a 50bps cut in September intensified along with the FED possibly cutting three times this year, and with the Dollar Index falling that allowed us to hit R18.18 ahead of the FED meeting.
- All the headlines however are around the FED with Jerome Powell confirming that a September rate cut is “on the table” should inflation and labour metrics continue to trend in their current directions.? While Powell reminded us that the FED will continue to look at the incoming data this was the first time that he has specifically mentioned September as the FED’s rate cutting departure point, and now that the cat is out of the bag it would be safe to assume that we’ll hear a lot more about September from his fellow FED members. ?The currency market barely moved on this news with the day’s gains already locked in, but the equity market loved Powell confirming that a 50bps cut is not being discussed which allayed any fears about the health of the US economy.?
- Yesterday was the week’s main event but there is still plenty to focus on before we get to the weekend.? Today it’s the Bank of England’s turn to grab the headlines, and while UK inflation is at the BoE’s 2% target the market is still seeing the chances of their first rate cut in this cycle as a 50/50 call.? Then tomorrow afternoon sees the all-important monthly US jobs report and while traders will be watching to see if the forecast of 235?000 new jobs is met, they will be equally focussed on the US unemployment rate which should stay at 4.1%.? If unemployment ticks up then we can expect more assertive FED language around a September rate cut, and hopefully some accompanying Dollar weakness.?
- Local market data today sees our July manufacturing PMI at 11:00 followed by the month’s new vehicle sales later in the day.?
- Possible USD mid rate trading ranges in the Rand today are R18.10 and R18.40
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