The rand rallied to its highest in nearly 10 weeks amid a softer dollar and expectations of a prolonged aggressive hiking cycle by the South African Reserve Bank (SARB) to curb elevated consumer prices.
The domestic currency appreciated 0.8% yesterday to R17.11 to the US dollar, the highest since September 12, amid the greenback’s losses as investors awaited the latest US Federal Reserve (Fed) meeting minutes that could offer clues on the central bank’s future tightening plans, after buoyant corporate earnings in the US and remarks by Fed policymakers that indicated they were open to slowing the pace of rate hikes
TreasuryONE currency strategist Andre Cilliers said although the rand was gaining momentum, it was still caught in the R17.20 to R17.50 range for now.
“We will require new impetus for the rand to break the current range, but with the long weekend in the US and the release of the FOMC minutes, the lack of liquidity in the market can cause some volatile moves possibly,” Cilliers said.
In terms of inflation, both headline and core inflation surprised on the upside in October, rising from 7.5% to 7.6% and from 4.7% to 5%, respectively, suggesting persistent inflationary pressures.
The SARB is set to deliver another big rate hike of at least 75 basis points at the last meeting of the Monetary Policy Committee (MPC) for the year today.
Interest rates are the only tool used by the central bank to tame hot inflation, despite heightened risks to the domestic economic outlook, including global headwinds and record power outages.
However, petrol prices (inland 95) fell by a cumulative R3.06 cents per litre during September and October, which has driven a deceleration in transport inflation.
Nonetheless, SARB Governor Lesetja Kganyago recently cited the need to get inflation expectations more anchored around the midpoint of its target range of 3% to 6%.
Meanwhile, the JSE FTSE All Share Index was up 0.9% to trade at 72 908 index points, propped up by the recovery in tech stocks and strength in resource-linked companies.
BUSINESS REPORT