All hail the Rand

The Rand has been stoic in the face of rising interest rates in the United States.

The Rand has been stoic in the face of rising interest rates in the United States, all though this was the first time we have had a “sure thing” in the way of an expected hike from the US Fed. There is no April meeting and in looking at the FedWatch Tool available via the CMEGroup on their webpage ( www.cmegroup.com) there is a 54.7% expectation for the interest rate to be between 100-125bps on the 14th of June, increasing in probability form 50.7% on the previous day. The market will now be looking to commentary from other Fed constituents throughout the rest of this week for guidance on any further increases as it was left fairly deflated, with the USD pulling back sharply following the rate hike.

Image courtesy of CME Group

Energy inflation has been the most broadly spoken about inflationary measure amongst the ECB, RBA and FOMC as a collective. Economists will be monitoring the price of both WTI and Brent Crude, with the obvious concerns that more and more US rigs coming back on line (numbering 631 now), pumping up the already burgeoning stockpiles in the US will put an end to the OPEC output cut agreement as supply outstrips demand. The retraction in the price of Brent was both violent and largely unexpected, losing nearly 8% over the course of three days as technicians would have been expecting an upward move following the bullish consolidation. It subsequently managed to find some support just above $50 to close out the week, up and off the four month lows with a definite ceiling being in place at $58. 

Turning to the local currency performance and the spot price return for the Rand against the major currencies of US Dollar, Euro and Great British Pound over the last three months has been 9.4%, 6.2% and 9.27% respectively with the Rand having the highest three month implied volatility against the Dollar out of EMEA currencies, with the EUR/RUB coming in a close second. Mining counters, retailers and financials have benefited strongly from the currency appreciation whilst industrials have been the worst effected given their large offshore revenue exposure.

The Rand gained almost 3% on the day of the US rate hike last week, intially being rejected off support at 12.80; all though since then it has made steady small gains to a new eighteen month high at 12.64. The long term bullish consolidation has been firmly broken for the first time as the currency pair dropped below 13.20, having being rejected off the new found resistance at this level. The downside target is now in place at 12.50 and given the lack of economic news this week, we should see this slowly grind downward.

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.