US Fed hike could put rand under pressure - analysts warn

The rand, still holding firm, could breach the R14.40/$ mark, said analysts.

The local currency opened at R14.35/$ on Tuesday morning, and is expected to trade within a range of R14.20/$ and R14.50/$ according to analysts from NKC Economics.

RMB’s head of global research Nema Ramkhelawan-Bhana said that the probability of it touching R18 to the greenback this year has fallen from 22% (at the start of the month) to 2%. “That isn’t to say that it cannot breach 14.40 today, dragging local benchmark bond yields alongside it,” said Ramkhelawan-Bhana.

Markets are also still feeling the impact of the additional trade tariffs the US placed on China, which came into effect on Monday, as well as the higher Brent crude price, she said.

Investors will also be tuned in to the US Federal Reserve Bank’s  interest rate decision scheduled to be announced at 20:00 on Wednesday. “The actual Fed decision is of little consequence, with the market pricing in an almost 100% probability of a 25bp hike. The hawkishness of the Fed’s dots plot and subtle changes to the committee’s language are of greater interest,” Ramkhelawan-Bhana said.

“With the 10-year US treasury yield perched at 3.10%, any upward bias in rate expectations will put it within a whisker of its cyclical high of 3.13%, reinforcing US dollar gains and exerting depreciatory pressure on the rand.”

Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions, echoed views that markets will be interested in the tone of the Fed, especially when it comes to inflation, economic growth forecasts and policy regarding the pace of future interest rate hikes.

“A hike in the US interest rate, will see the rand come under pressure and some weakness can be expected as a result, potentially targeting the R14.65 level,” said Botes.

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