US Dollar surges as Rand falte

US Dollar surges as Rand falters

The Rand weakened on Friday as the South African government recorded a R13 billion budget deficit in August, following a R92 billion shortfall in July, which stoked fears that the country may not avoid future credit downgrades.

US Dollar surges as Rand falte

Last week the Rand opened at 13.33 to the Dollar, and then weakened to 13.63 due to increased prospects of a future US interest rate hike. Economists have also warned that the possible R3 billion bailout of SAA will not sit well with the ratings agencies and could put the country’s credit rating under further pressure.

The JSE briefly touched 56 000 points, as miners and big industrial stocks have been pushing the local bourse higher due to a weaker Rand. Rand weakness has also been cited as one of the biggest risks by the South African Reserve Bank as it contemplates further interest rate cuts. Political uncertainty due to the upcoming ANC election in December, as well as geopolitical uncertainty, has further reduced the ability of the Reserve Bank to cut interest rates in such volatile times.

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Gold fell to its lowest level since mid-August, as rising US Treasury yields pushed the Dollar higher. Expected future increases in the US interest rate has led to investors buying an increased amount of US treasuries in search of yield, this in turn has caused decreased demand for gold, which has been weighing on the price of the metal.

The Euro came under pressure as market participants digested the results of Sunday’s independence vote in Catalonia, Spain. The Catalan government said that 90 percent had voted to split the Spanish region from the rest of the country. Spain’s equity, as well as debt markets, weakened further after the vote, as investors priced in the political uncertainty and the Euro weakened against a basket of currencies.

In the UK, Mark Carney suggested that it was time for the Bank of England to “ease its foot off the accelerator”. He said that while UK lending has decreased significantly since the financial crisis, there was still some danger due to rapid growth in some areas of household borrowing. The central bank is especially worried about consumer debt and personal loan risk – making an interest rate hike more likely.

Day What’s happening Why it’s important
Tuesday ABSA RSA Manufacturing PMI The Manufacturing PMI is a monthly survey of purchasing managers in South Africa. A higher-than-expected reading indicates that the manufacturing economy is expanding, which will be beneficial for the Rand.
Wednesday US ADP Employment change The report measures employment in the US. A higher-than-expected reading will be beneficial for the Dollar, whereas a lower-than-expected reading will lead to Dollar weakness.
Thursday US Balance of trade The balance of trade indicates the value of the imports versus the value of exports of a country. A higher-than-expected reading will have a positive effect on the Dollar, whereas a lower-than-expected reading will have a negative effect on the Dollar.
Friday South African foreign exchange reserves The foreign exchange reserves represent all foreign currency, gold and marketable securities controlled by a government.

-Henning Joubert

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