What can you expect from the rim in the coming months?

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The rand is expected to be beaten by global markets in the coming months as inflation and interest rate pressures from US and European Union central banks continue to dominate global market movements.

The European Central Bank (ECB) raised interest rates by an unprecedented 75 basis points (bps) last week, raising the likelihood of a larger-than-expected hike by the South African Reserve Bank later this month.

On the same day as the ECB’s statement, US Federal Reserve Chairman Jerome Powell emphasized that the Fed must “take firm action,” further bolstering market expectations of a third consecutive 75 basis point rate hike in the US later this month. .

Investec chief economist Annabel Bishop said markets will react immediately to the US CPI data coming this week, impacting the US dollar and thus the rand.

“Currently, Fed futures rates show that a 73 bp increase has been factored in by the markets at this month’s FOMC meeting — September 21 — essentially taking into account a 75 bp move,” she said.

The edge will move towards this and is likely to fluctuate, weaker and stronger, for the rest of this month and into the fourth quarter of the year, while maintaining high sensitivity to any US inflation data, she said.

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“Market expectations for the US rate hike in September are fluctuating between 50 bps and 75 bps earlier in the month, and a lower-than-expected CPI print could bring the market’s rate hike outlook back closer to 50 bps if this happens,” he said. they. said.

In this case, the edge could strengthen against the greenback as the US dollar weakens further, but this short-term volatility could be offset by the US PPI print coming in higher than expected later in the week or another inflation rate. indicator .

“Volatility is likely to continue for the rand against the US dollar, while it has experienced more stability against the GBP and EUR. However, in Q4.22, it may see some more fundamental strengthening towards R16.00/USD rather than R17.00/USD,” Bishop said.

The economist said the rand could strengthen in the near term, but any gains are likely to be temporary as local issues such as ongoing tax shedding continue to erode sentiment.

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“Overall, the edge is still very weak, far from fair value and still reflective of an elevated risk aversion environment, despite some volatility,” she said.

Impact on interest rates

The Bureau of Economic Research said the rand is likely to remain under pressure, impacting the SARB’s rate print at the end of the month.

“The rand did not reach the multi-year low, but continued to be under pressure this week. While the South African economy’s current account has often been subject to the vagaries of global market movements, which unexpectedly slipped back into deficit territory, significant recent support on the fringe has been removed,” the BER said.

A softer edge is one of the main contributing factors likely to push interest rates higher at the September meeting, adding that projections of gains have shifted from 50 bps to 75 bps.

Nedbank’s economic data also attributed the shaky bottom of the rand to the current account deficit and subdued risk appetite amid ongoing concerns about global growth and speculation about the size of US rate hikes.

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It recently noted that market forces at play have shown that underlying global status does not support the outlook for the rand and other emerging market currencies.

However, local issues have also played an important role – mainly tax shedding – as political uncertainty fuels risk behaviour.

Nedbank noted that the rand has been under sustained pressure over the past three months, with the sharpest depreciation against an unfettered US dollar, which has reigned supreme in global markets, buoyed by the Fed’s aggressive rate hikes and its aggressive rhetoric.

It said the odds are likely to remain stable against the fringe for the next year and a half, with the group’s model pointing to a monthly average of R17.14 for September, falling to around R17.00 by the end of the year.

On Monday afternoon, the rand traded at the following levels against major currencies:

  • Dollar/Red: R17.10 (-2.25%)
    Pound/Rim: R20.00 (-0.78%)
    Euro/Rand: R17.30 (-1.20%)

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