The world is changing fast and to keep up you need local knowledge with global context.
Cape Town – The rand spiked to R13.07/$ on Wednesday morning as tapering comments from European Central Bank (ECB) president Mario Draghi continued to hurt risk currencies.
The local unit closed at R13.02/$ overnight in New York. It started to recoup losses, albeit very modestly, in early morning trade on Wednesday, but quickly weakened again when markets in Europe opened.
“The local unit, like other risk currencies, was badly hurt by…Draghi’s tapering comments yesterday, but should be able to recoup some losses today,” said RMB currency strategist John Cairns in a note to clients.
The rand also came under pressure in late European trading on Tuesday as emerging market currencies were hit by the unfolding political crisis in Brazil, according to NKC Africa Economics.
At 10:02, the rand was trading 0.5% flat at R13.02 after weakening to R13.07 to the greenback. It firmed to R12.97 earlier in the session.
ECB is preparing to taper its bond buying programme
Draghi took the market by surprise by suggesting that the ECB is preparing to taper its bond buying programme. His comments were rather convoluted, but EUR/ZAR saw the biggest move, pushing all the way to 14.77, said Cairns.
Draghi said “as the economy continues to recover, a constant policy stance will become more accommodative, and the central bank can accompany the recovery by adjusting the parameters of its policy instruments — not in order to tighten the policy stance, but to keep it broadly unchanged”.
This could mean the ECB is set to imminently announce a tapering programme. However, RMB said it is more sceptical.
“The ECB president has made comments like this before, only for the broader ECB to back off from actually taking any action. Indeed, it is quite possible that other ECB members will push back against the expectation when they speak at the bank’s forum today.”
Cairns said ECB policy will remain a central market focus as the bank will have to decide what to do with its qualitative easing programme, which expires at the end of the year.
The combination of higher ECB tapering risks and lowered hopes of US fiscal stimulus is a negative one for global markets all round.
US Federal Reserve chairperson Janet Yellen gave some insight about the longer-term global economy in her speech on Tuesday evening, but did not really delve into the innermost thoughts of the Fed regarding their position on their own interest rates, said TreasuryOne’s Andre Botha.
“The lack of direction of Yellen’s speech plus the bullish Draghi gave the euro a boost and is trading at 1.1350 this morning. The rand against the euro has lost 40 cents in a day and is at R14.80 at the moment looking to push higher,” Botha said.
In Brazil, President Michel Temer was formally accused of corruption by the country’s attorney general.
Locally the Reserve Bank governor has slammed the Public Protector’s comments regarding the mandate of the SARB.
“The feeling is that this can become a tug of war for the foreseeable future. This can add a little uncertainty in the simmering stew of the South African economy with the broth becoming more unpleasant as the chefs argue about their recipes,” said Botha.
He added that the red numbers on Wall Street, the bullish eurozone, the vague Fed and questionable South African politics could see the rand lose some ground today.