USD/ZAR – The Rand regained 50% of its losses from Monday/Tuesday

Possible best buying today around 12.40 with a move back up to 12.52 highly anticipated.

The market is waiting to see what the Federal reserve will do with US interest rates next week. The US Federal Reserve has maintained a fairly hawkish position throughout, suggesting that their interest rates might still be on the way up, but on the back of last week’s poor inflation data this might materialise as quickly as everyone is expecting.

US Interest rates

Obviously, a US rate hike will put pressure on the USD/ZAR price as this will reduce the interest rate differential between SA and the US which is not favourable for investments.  At this stage, emerging markets are still looking favourable‚ interest rates are a lot higher compared to other developed economies which is attractive for cash and fixed income investors. As it stands the Rand is currently trading around 12.47 against the US Dollar. (Mid-market)

Focus on emerging markets

There’s nothing really driving the South African Rand at the moment, it’s just being pulled along with the other emerging markets which are growing at 6 – 7 %. Retails sales data for march was up slightly but the unemployment rate of 26.7% remains the same. It’s not amazing news but things could certainly be worse.

At this stage we’re looking at next week’s inflation report to see if it’ll have any impact on South African interest rates. It’s unlikely we’ll see any change as we’ve just dropped interest rates. The estimate is that we’ll see a rise from 4.1% to 4.3%, whilst the headline reading is expected to climb from 3.8% to 5.1%. The South African Reserve Bank (SARB) currently has an inflation target of 3-6%, so a reading in line with this won’t have any impact on rates.