Rand Strengthens to Below R15/$

Mar 30, 2016

 R15/$ Ceiling Broken

Today the rand strengthened to above the R15/$ ceiling for the first time since December, after US federal reserve bank chairperson Janet Yellen’s dovish comments yesterday. Yellen said the bank will be taking a more cautious approach to rate hikes, due to dropping oil prices and slowing global growth.

Adam Phillips of Umkhulu Consulting said “A need for caution is all it took from Janet Yellen in a speech last night to see the rand move back below 15.20.”

By 10.15am today, the rand was trading at R14.96 against the dollar.


Oil Price and Global Growth

Yellen emphasised the reduced oil price and more modest global growth, which “was all operators needed to push the dollar lower against the majors.”

“The chances of a hike in the US before the first (half) of 2016 has dropped to below 25% now,” said TreasuryOne. “US treasury 10Y yields also dropped below 1.80% overnight. This has caused the dollar/rand to gain some momentum….”

John Cairns, analyst at RMB said Yellen was “outright dovish in her comments yesterday, saying explicitly that the Fed would ‘proceed cautiously’ with rate hikes, while arguing that ‘it is too early to tell if this recent faster pace [of core inflation] will prove durable’.

“Market expectations of hikes have shifted back accordingly”


Politically Volatile  

The dollar is still the main threat to the rand, particularly as US payroll data is due this Friday, but domestic politics will come to the fore in the coming two days said Cairns.

Worry that the rand will stay at R15/$ arises as we await Wednesday, when Finance Minister Pravin Gordhan will respond to the Hawks with regard to the purported “rogue Sars unit.”

“More importantly, the Constitutional Court has said that it will hand down its ruling on the Nkandla matter tomorrow, probably opening up the way for opposition parties to step up their calls for the president’s removal from office,” Cairns said.

“All eyes will be on the Concourt on Thursday with regards to a decision on Nkandla,” said Phillips.

Analysts say these occurrences could alter the rand/dollar relations, as the rand has been vulnerable to political affairs this year.

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