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The SA Daily 13 June 2018

Fed hike a fair done deal

Shireen Darmalingam

  • After broad-based dollar weakness in 2017 and early this year, particularly against the euro, the trade-weighted dollar has been making reasonable gains in recent weeks, keeping emerging market currencies, including the rand, under pressure.
  • Further dollar strength is anticipated in the weeks ahead although global trade tensions, as highlighted at the G7 summit at the weekend, as well as the signing of an agreement between the US and North Korea, leave us at odds about the dollar.
  • Our short-term bias is for dollar strength on expectations of higher policy rates in the US as well as prevalent risk-off sentiment. Furthermore, expectations of higher US borrowing costs at the conclusion of the US policy meeting today could keep the rand under pressure.
  • Our near-term rand outlook is therefore cautious. The rand is still faced with low domestic economic growth and the expectation that the SARB would be unlikely to hike rates in tandem with other EM central banks. We’d therefore expect a further rand sell-off on risk aversion flaring up.

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