Rand gains more than 30c on dovish US Fed

The rand rallied sharply on Wednesday night after the US central bank indicated it was not going to raise interest rates twice in 2019 as previously expected.

US Federal Reserve chair Jerome Powell saying “the case for raising rates has weakened somewhat” helped the rand gain 2.4% from Wednesday afternoon’s R13.65/$ to R13.31/$.

The rand was trading at R13.33/$, R15.33/€, and R17.50/£ at 6.25am.

When the US central bank raised its interest rates by 25 basis points in December, taking its ceiling to 2.5% and its floor to 2.25%, it indicated it intended raising the upper end of its range to 3% by the end of 2019.

Powell’s statement on Wednesday night indicated this was no longer the plan, which lifted Asian markets on Thursday morning.

Naspers’s dominant asset, Tencent, rose 1.16% to HK$348.20 and BHP gained 1.21% to A$35.02 in Sydney ahead of the JSE’s opening on Thursday. Naspers and BHP between them account for more than a third of the top 40 index, indicating a good day for the local bourse.

Thursday is a busy day on the economics front, with Stats SA scheduled to report December’s factory and farm gate inflation, as measured by the annual change in the producer price index (PPI), at 11.30am.

The SA Revenue Service (Sars) is scheduled to release December’s balance of trade figures at 2pm.

Inflation, as measured by the annual change in the consumer price index (CPI), slowed sharply to 4.5% in December from 5.2% in November thanks to a R1.84/l drop in petrol prices, which equated to the Gauteng price of 93 octane petrol falling 11% to R15.01/l from R16.85/l.

Producer inflation is expected to show a similar drop, with Investec economist Kamilla Kaplan forecasting a slowdown to 6.3% in December from 6.8% in November.

“Traditionally, the trade account registers a surplus in the month of December, typically on account of a decline in imports. We forecast a trade surplus of R9.4bn,” Kaplan wrote in her weekly note e-mailed on Friday.

“Taking into account the December forecast, the trade surplus would total R5.2bn for 2018 as a whole. This would be a marked reduction on the R76.8bn surplus in 2017.

“In 2018, import growth outpaced export growth as global growth momentum slowed and commodity prices came under pressure. Imports were buoyed mainly by a higher international oil price. The subsequent drop in the oil price in the fourth quarter of 2018 and into 2019, coupled with only a modest pace of economic activity should contain the pace of import growth in 2019.” 

laingr@businesslive.co.za