Rand weakens as market awaits policy signals by US Fed

The rand remained weaker against hard currencies on Monday afternoon, as investors eyed the upcoming US Federal Reserve meeting on Wednesday and global data releases.

Analysts said global factors rather than local ones would have more of an effect on rand volatility, which is expected to continue until the end of 2017. Economic data releases from both the US and eurozone are expected to be closely watched, as markets gauge when monetary policy tightening, expected this year, will begin.

The dollar remains under pressure due to US political uncertainty, but the euro could weaken after signs that economic growth in the eurozone in the second half of 2017 may not have been as strong as in the first.

The eurozone composite purchasing mangers index (PMI) disappointed on Monday‚ declining to 55.8 in July‚ below a consensus forecast of 56.2. It was still above 50, a level that indicates growth rather than contraction.

The euro, which the rand usually tracks, weakened to $1.1630 on the news, before paring losses to trade at about $1.1644 in afternoon trade.

The PMI data was not enough to signal a significant slowdown, said Oanda analyst Craig Erlam. The fact that the euro had slipped a little in response to the numbers may also reflect some profit-taking, as the euro traded near a two-year high against the dollar, he said.

At 3.30pm‚ the rand was at R12.9808 to the dollar from R12.9172‚ at R15.1118 to the euro from R15.0635 and at R16.9102 to the pound from R16.7792.

Relatively slower US growth and a more dovish Fed could support emerging-market currencies, including the rand, over the next few months, provided the political economy of SA is not radically transformed, said Investec Wealth and Investment chief economist Brian Kantor. The rand exchange-rate ratio to other emerging-market currencies, and the credit yield spreads seemed to demonstrate a belief of policy continuity in SA, he said.

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