The market’s jitters are slowly easing, and in so doing allowing the Dollar to recover, but we still have to navigate tomorrow’s US inflation report.? Please note that today will be this week’s last forex report due to travel requirements so we can reassess where the Rand sits on Monday morning while gearing up for the FED on Wednesday!!!
These are the mid rates at 5:55 today:
Brent Crude = $71.60 per barrel
- The Dollar was under pressure for most of last week which saw the Rand spend time around R17.70 but Friday afternoon’s jobs report ended up being Dollar positive, a change in sentiment that continued into yesterday as we opened the new week at R17.85 before falling to R17.95 as the day’s worst level.
- With very little to report on locally the Rand is taking all of its direction from Dollar movements, and unfortunately for us yesterday’s stronger Dollar meant only one thing for our exchange rate.? The Dollar has been pulled from pillar to post in recent days/weeks with the market trying to predict whether the FED will opt for a 50bps interest rate cut next week in an attempt to regain control of a deteriorating US economy, or whether they’ll be happy with a more traditional 25bps cut while pointing out that any concerns around the economy are overblown.? Bets of a 50bps cut stood at 50% last Friday morning which weighed on the Dollar while sending us to R17.70 at the time, but those bets have shrunk to 29% now which is supporting the Dollar.
- The reason for the change in sentiment is that fears of a US recession are receding.? Not to say that these fears can’t resurface should we get a damaging headline, particularly on the labour front, but last week’s jobs report which showed US unemployment falling to 4.2% alongside an improvement in hourly wages has done enough to convince the market that the FED is guiding their economy towards a soft landing (lower inflation but decent economic growth).? Stocks picked up this theme yesterday with a strong rebound after last week’s heavy selling and the Dollar also came back to life which put pressure on the Rand.
- The following is from Reuters and talks to increased chances of a smaller rate cut being Dollar positive:??The Dollar snapped back against the Yen and other major currencies on Monday after losses last week, as investors looked ahead to key US inflation data and reduced expectations for an outsized?FED?interest rate cut next week. "I think the FED is going to cut by 25bps next week. There could be a jumbo rate move of 50 in November depending on the inflation data that comes out. But the latest information on growth shows the economy is doing okay.? It's definitely slowing and moderating," said Amo Sahota, executive director at Klarity FX in San Francisco. "It would be too harsh to say that the economy is collapsing, or in recession. Is the FED behind the curve? Potentially yes, but they can get there if they do a series of 25-basis-point moves.
- Also helping the Dollar is a change in US sentiment towards the overall health of the economy, this as the ongoing strength in their economy has not being reflected in the way Americans see the prospects of improving their financial situation.? This disconnect has been attributed to the elevated and restrictive interest rate, a challenge that South African’s can easily identify with, but with US rates about to start decreasing that has triggered a wave of optimism across the US consumer base, optimism that is proving a tailwind for the Dollar.? Hopefully we also embark on the path to much lower rates when the SARB meets next Thursday!!!
- The following is from CNBC and points to improving US sentiment:??For months economists have wrestled with the?disconnect between how well the economy is doing and how badly people feel about their financial standing. Now, evidence suggests that the so-called?vibecession, or that prolonged period of negative sentiment about the economy, appears to be ending. Despite earlier expectations of a recession the US has dodged a downturn, according to Jack Kleinhenz, chief economist at the National Retail Federation. “The US economy is clearly not in a recession nor is it likely to head into a recession in the home stretch of 2024. Instead, it appears that the economy is on the cusp of nailing a long-awaited soft landing with a simultaneous cooling of growth and inflation.”
- Local market data today sees our July manufacturing production stats at 1pm. ?
- Possible USD mid-rate trading ranges in the Rand today are R17.75 and R18.05.
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