Good times for the Rand continue to roll on as yesterday evening saw us hit our best level since July last year.? While it’s impossible to know when this run will end given that disruptive headlines can always appear out of nowhere one gets the feeling that if tensions in the Middle East remain contained then we might benefit from the market waiting for Jerome Powell this Friday night.?
These are the mid rates at 5:55 today:
Brent Crude = $77.08 per barrel
- Another day and other strong performance by the Rand, this as we opened the week at R17.83 to the Dollar and drifted sideways for most of the day before the start of the US session saw us quickly notch up gains to hit R17.67 just after 5pm.?
- As mentioned yesterday the Rand is benefiting from positive local headlines but while these have created an environment where the Rand can take advantage of a softer Dollar we still need the greenback to retreat, and that’s exactly what happened yesterday.? It must be remembered that we are talking about the Dollar here, the world’s reserve currency and one of the best safe haven assets around, so positioning for indefinite Dollar weakness would be a foolish move, but for the time being the Dollar is firmly on the back foot and the Rand is loving it.?
- Barring Japan, the developed world’s central banks have all started cutting interest rates, and the Dollar stood strong in recent months as these other currencies faltered thanks to the prospect of lower domestic rates.? But the FED is about to start cutting and the market, having a penchant for predicting the future, is deciding whether the FED will cut by 25bps in September or 50bps while also pricing in further cuts at the FED’s November and December meetings.? Of course this is just guesswork at best, and if US jobs and inflation data comes in strong ahead of the next FED meeting then these predictions will be wound back while breathing life into the Dollar, but for now the “hopes” of deep and quick FED cuts have sent the Dollar Index to 101.95 while the Rand is marching stronger.? ?
- FED Chair Jerome Powell’s speech is undoubtably the week’s main event, and traders might sit on the sidelines in the build-up wary of taking large positions either way, but tomorrow sees the latest FED minutes as well as a report which shows revisions to US labour reports from earlier this year.? The following from Reuters suggests that downward revisions could embolden Powell’s September rate cut signalling which would add to the Dollar’s woes:? "Powell has indicated that the FED is monitoring the labour market carefully for indications of deterioration and stands ready to intervene if necessary," Quincy Krosby, chief global strategist at LPL Financial, said in note on Monday. "Should the report reveal a considerably smaller number of jobs created than were initially announced in monthly payroll reports, the FED chair's concerns could be amplified in his comments."
- Major market events always carry both risks and opportunities, and while the Rand is hoping that Powell will roll out the red carpet for rapid-fire rate cuts we should be mindful that his default setting is one of caution and patience.? Powell will probably keep all options on the table while remaining data dependant, and the following from CNBC reminds us that a cautious Powell could swing things back in the Dollar’s favour: ?“The encouraging US macro backdrop of solid domestic demand activity and moderate disinflation suggests the FED is unlikely to cut the funds rate as much as is currently priced-in,” said Elias Haddad, senior markets strategist at Brown Brothers Harriman. “As such, there is room for an upward reassessment in FED funds rate expectations in favour of USD and Treasury yields.”
- Local market data today sees our June leading cycle business indicator at 9:00.
- Possible USD mid rate trading ranges in the Rand today are R17.60 and R17.90
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