The question remains whether the rand can build on recent gains or whether it will just be a quick spike before the trend continues of rand weakness as it has done over the past few years, according to Wichard Cilliers, director and chief currency dealer at treasury services compan TreasuryOne. The rand closed out last week at R13.30 against the dollar and breaking R15.00 against the euro briefly before settling at 15.1000 as markets closed for the weekend. Cilliers explained that the sharp downward movement was halted somewhat when US Federak Reserve members came out last week with statements that the time is right to hike interest rates in December.
These statements could bring further volatility to the rest of the week, in his view, when the US enters the markets on Tuesday after the Columbus Day public holiday on Monday. “Last week saw the fallout from the US non-farm payroll number continue as the rand gained more than 70 cents against the dollar since the release of the number mentioned above. The weak number has raised market concern over whether the Fed will hike rates in December,” said Cilliers. The current state of play is that markets are expecting a 37% chance of a rate hike in December.
“Emerging Markets (EM) were on the front foot, partly due to the effect of the bad US numbers, but also as China was celebrating its golden week last week,” said Cilliers. “With no negative data out of China, EM’s were free to enjoy the change of sentiment.” The turnaround in sentiment also helped the commodity sector with gold creeping up above $1 150 a fine ounce after looking like breaking below $1 100 and boded well for riskier assets, as commodities gained across the board.
Thursday and Friday will see the release of US retail and US inflation numbers.
On the South African front Cilliers pointed out the merger plans between InBev and SABMiller as well as the proposed strike in the gold sector by mining union Amcu as factors to watch. “The strike could harm the rand should it turn violent and protracted as was the case with the strikes in Marikana in 2012,” he explained. “The current sentiment is for the rand to strengthen a little as the US non-farm fallout is seemingly petering out. This week has the potential to be a bit bumpy with the return of China, so any level below $13.2500 is a definite short-term buy.”