All hail the Rand

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

anonymous

Publication date : 2017-03-20T15:18:48+0000

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 14^th 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.

All hail the Rand

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