With the Fed statement on its decision “to raise the target range for the federal funds rate to 1-3/4 to 2 percent” being released after SA market hours, the rand this morning is at R13.24/USD, seeing some stability on the certainty the US hike has brought, with the USD strengthening somewhat. This is according to Investec economist, Annabel Bishop.
The FOMC is seen to signal it will increase its interest rate four times this year in total. It stated that “as the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly.”
The Fed balanced its guidance by highlighting that “indicators of longer-term inflation expectations are little changed” and that “further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term.”
The next FOMC meeting is on 31st July to 1st August, followed by 25th to 26th September, 7th to 8th November and 18th to 19th December this year, with the Fed likely to give guidance at upcoming member speaking engagements.
“While we forecast no hikes in SA’s repo rate this year, we expect a 25bp rise in January 2019 and another in March 2019,” Bishop said.
“With the FOMC news already priced into markets before the meeting, trading patterns suggest the rand on a near-term basis could attempt to return to R13.00/USD, and in the immediate term it could move below R13.15/USD,” she added.
“However, longer-term (Q3.18) the risk of depreciation towards R14.00/USD remains, if perceptions of FOMC communication become more hawkish.”