Johannesburg - The rand weakened the most in almost three weeks yesterday, leading currency declines against the dollar as traders bet the Reserve Bank would leave interest rates unchanged this afternoon.
The local unit slumped 1.7 percent to R13.7115 per dollar by 5pm, the biggest fall on an intraday basis since September 4 and the most out of 16 major currencies tracked by Bloomberg. Earlier in the day, the rand touched R13.7429, the local unit’s weakest level since September 10.
The Federal Reserve left borrowing costs unchanged last week, making it more likely the Reserve Bank would leave its policy rate on hold.
“We’re seeing some guys positioning for the flat move as we go into tomorrow’s monetary policy committee rate announcement,” Mohammed Nalla, the head of strategic research at Nedbank, said yesterday.
Rate agreements
The Reserve Bank has raised the benchmark interest rate twice since July last year even as the economy risks falling into recession for the first time since 2009.
Forward-rate agreements, used to speculate on interest rates, are predicting less than a 20 percent chance of a rate increase. “Emerging markets have weakened. It’s a risk-off scenario today and the Fed did not do anyone any favours last week,” said John Cairns, a currency strategist at Rand Merchant Bank.
The dollar had firmed during the previous session after comments from Fed officials pointed to the bank resuming policy tightening by year-end after leaving interest rates on hold last week.
“The monetary policy announcement could give investors some clues as to how the Reserve Bank is going to react to US Fed movements in next few months,” analysts at NKC African Economics said.
In the past two weeks the rand has struggled to hold on to gains past the R13.25 resistance level, leaving it open to a retreat beyond R13.50.
In another development, the Reserve Bank’s leading business cycle indicator declined for the third consecutive month in July, to 92.8 points from 94.4 in June.
Laura Campbell, an economist at Econometrix, said this was the lowest reading recorded since November 2009 at the time of the 2008/09 global financial recession.
The Reserve Bank said the July indicator was dragged lower by a decrease in the dollar-based export commodity prices index and a dip in the number of residential building plans approved.
Confidence loss
Campbell said there had been been a loss of confidence in the domestic economic outlook in recent months due to violent xenophobic attacks, anxiety surrounding electricity availability, economic policy ambiguity and ongoing concerns related to labour disputes.
“Low business confidence in the domestic economy must have played a role in depressing the number of building plans approved for flats and townhouses.”
The indicator collates data including vehicle sales, job advertisements, business confidence and money supply to gauge the economic outlook.
Campbell said for 2015 as a whole, it was unlikely gross domestic product growth would come in anywhere near the 2 percent growth currently being forecast by the Reserve bank, the Treasury and the International Monetary Fund.
“A recession cannot be ruled out, although marginal growth just above 1 percent can still be achieved,” she said.
* Additional reporting by Bloomberg and Reuters
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