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Cape Town – The rand was on the cusp of breaking through the R14.20/$ ceiling on Thursday after the US Fed said it was not going to hike its fed funds target range on Wednesday.
Up 1.2% at 08:45 on Thursday to the dollar, the rand benefited from the upbeat tone of the Fed statement, as it “was a bit more confident on improving economic conditions, particularly household consumption”, according to RMB analyst Isaah Mhlanga.
READ: US Fed begins crawl toward rate hike as near-term risks diminish
“It, however, pointed that business investment remained weak,” he said in a note on Thursday.
“Overall, the statement was hawkish and reveals that the Fed might hike in September, but December seems more likely as the Fed may require more time to assess the Brexit impact and of course the US election in November.”
The caveat is that the fallout from Brexit is not as bad as everyone thinks, said Umkhulu Consulting’s Adam Phillips on Thursday.
“Before the end of the SA session, Finance Minister Pravin Gordhan did warn that growth would be below 1% and the senseless killing of another candidate in the local election forced the rand up to 14.35 at around 18:00. After that it swiftly came down on the back of Yellen's 'sit on the fence' press conference,” he said.
Mhlanga added that after weakening to R14.39 against the dollar on news that SABMiller instructed its employees to stop any work on integrating with AB InBev, the rand gained and opens at 14.20 against the greenback.
READ: SABMiller trillion rand deal now in disarray
Mhlanga said now the Fed frenzy is over, the market will turn its attention to the Bank of Japan on Friday, which is expected to open the flood gates of stimulus to the tune of ¥7trn in spending, according to Reuters and Bloomberg reports.
On Thursday, Stats SA will release producer price index (PPI) data and unemployment rate figures.
“I think the unemployment figures will be given in terms of being negative, but it will interesting if the PPI has started to move down yet on the back of the rand,” said Phillips.
Mhlanga said the market expects the PPI inflation for June to print higher at 6.7% from 6.5%.
“The unemployment rate is likely to have remained unchanged at 26.7% in the second quarter of 2016,” he said.
