Rand Report 26/08/2024

Good morning?

“The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”? On Friday FED Chair Jerome Powell gave the clearest indication yet that interest rate cuts are coming soon, and the Rand loved it.? ??

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These are the mid rates at 6:00 today:

USD = R17.73

AUD = R12.03

GBP = R23.43

DXY = 100.69

EUR = R19.85

Brent Crude = $79.59 per barrel

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Market News:

·???????? Last week was all about Jerome Powell’s speech on Friday and despite some nervousness in the build-up the main event definitely delivered for the Rand.? We had weakened to R18.05 on Thursday but when Powell spoke the currency market’s reaction was immediate with the Rand surging to R17.70.? We open today at R17.73 and hopefully escalating tensions in the Middle East don’t weigh on risk assets as momentum is clearly against the Dollar right now.??

·???????? Central bankers do not get carried away with things and Jerome Powell in particular has proven to be as cautious as the best of them when managing the market’s expectations, and so his speech at the Jackson Hole symposium last week was never going to be a “pop the champagne, we’ve won” moment.? The market was worried that he would stick to his tried and tested narrative of needing more data to gain sufficient confidence that inflation is headed back towards target, and the Dollar Index inched higher leading up to his speech, but that all changed as soon as he took to the podium.? Without explicitly saying “we are cutting in September” Powell got as close to that certainty as he could have, and the only optionality he left on the table was whether the FED will cut by 25bps or 50bps.? The Dollar Index sank to a 13 month low of 100.60 and the Rand powered to R17.70.??

·???????? With US inflation at 2.9% and trending lower the FED has turned their attention to preventing the unemployment rate from moving much higher from the current level of 4.3%.? With the FED set to cut by at least 25bps in three weeks’ time, and with the distinct possibility that they will cut by a larger 50bps at any of their three remaining policy meetings this year should labour data deteriorate to unwelcomed levels, the Dollar has taken a direct hit which is opening the door for Rand gains.

·???????? The following is from Reuters:??The Dollar fell and Sterling rose to its highest in more than two years on Friday after FED Chair Jerome Powell?gave an unambiguous signal?that the long-anticipated US interest rate cut would come next month. "I think the markets' reaction, which has seen the Dollar a bit weaker, bond yields a bit lower, is about right. It's not like he said, 'Yeah, we're going to do three cuts of 50bps to begin the easing cycle'," said Steve Englander, head of G10 FX research at Standard Chartered Bank in New York. "Implicitly, it opens the door to 50bps at some point without giving a timetable for it. We still don't think 50bps is going to be the first move, but it could come quickly if the labour market continues to weaken."

·???????? While inflation reports have dominated in importance for a long time now the FED (and therefore the market) will be laser focused on the August US jobs report which comes out on Friday the 6th?of September.? We need to see if July’s report, where just 114?000 new jobs were created while unemployment jumped from 4.1% to 4.3% was just a once off, or whether weakness in the labour market is more entrenched, but for now the market is betting that a soft landing with lower inflation coupled with strong economic activity is the most likely outcome.? Stocks notched up decent gains on Friday after Powell’s comments while the Dollar retreated, hopefully these roles are not reversed should weak labour data bring fears of recession back onto the table.??

·???????? In financial market’s all is good for the Rand right now but unfortunately this cannot be said for geopolitics as yesterday saw a significant escalation in Middle East tensions.? Hezbollah fired hundreds of missiles and drones at Israel while the Israeli’s sent around a hundred jets to strike targets in Lebanon so as to minimise the Hezbollah attack.? Regrettably deaths have been reported on both sides but the good news is that both sides say their actions have now been completed, and with any further attacks seeming unlikely that has meant a limited impact on the Rand as a risk asset although this threat seems ready to boil over at any moment.? ?

·???????? No local market data today.??

·???????? Possible USD mid-rate trading ranges in the Rand today are R17.65 and R17.95.

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