Rand spikes above R13.20/$ on US CPI

Cape Town - The rand spiked through the R13.20 resistance level to a high of R13.27 to the dollar on Thursday, after the US consumer price index (CPI) came in better than expected.

"US CPI came out at 0.4% month-on-month and 1.9% year-on-year, which beats expectations of 1.80%. This has helped the USD on the front foot, with EURUSD losing value to 1.1840 from 1.1900 earlier. USDZAR currently trading at R13.22," TreasuryOne said in a snap note following the release of the inflation data.

The local unit however recovered some losses to trade 0.42% weaker at R13.19 by 15:32.

Bloomberg reported that the improvement in US CPI, were it to persist, would make it more likely that the Fed will raise interest rates in December.

Locally, economic data was also not rand supportive. On Tuesday retail sales numbers came in lower than expected, while business confidence, although up slightly, also disappointed.

On Wednesday morning the SA Reserve Bank reported the current account deficit has widened from 2% to 2.4% of GDP for the second quarter of the year.

According to the SARB’s quarterly bulletin of September 2017, the improved trade surplus was outweighed by the widening shortfall of the service, income and current transfer account.

The deficit on the current account of the balance of payments widened from R91bn to R110bn.

RMB currency strategist John Cairns said the rand has come under pressure mainly because of the strengthening of the dollar but also because of SA-specific factors.

"The weakness on the local factors seems significantly overdone, but we would be cautious in thinking a reversal of this effect would be enough to generate a rand recovery in such a strong dollar environment."

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