August 21, 2019 - Written by John Cameron
STORY LINK US Dollar to Rand Exchange Rate Tumbles as Investors Anticipate Federal Reserve News
Despite some weaker than expected South African inflation data today, the US Dollar to South African Rand exchange rate tumbled ahead of the publication of the Federal Reserve’s latest meeting minutes this evening, as well as other major central bank news expected later in the week.
Due to broad weakness in the South African Rand, USD/ZAR was able to edge higher last week even despite rising US recession fears. USD/ZAR climbed from 15.25 to 15.30 throughout the week.
However, unless upcoming central bank news bolsters US Dollar demand, USD/ZAR may be on track to shed most of those gains this week. After briefly climbing to a fresh 3-year-high of 15.48 on Monday, USD/ZAR has been tumbling. At the time of writing today, the live USD to ZAR exchange rate
was trending close to the level of 15.22.
USD Exchange Rates Slide as Investors Anticipate Central Bank Developments
The US Dollar’s movement has been mixed in recent weeks, as the currency has failed to capitalise on safe haven demand amid concerns that the US economy could be negatively hit by the worsening US-China trade war.
Last week saw US recession fears rise, as the US yield curve inverted for the first time since 2007. An inverted yield curve has historically indicated that a recession could be possible in the coming years.
US data hasn’t done enough to offset these fears, and while the Federal Reserve’s most recent policy decision was more hawkish than expected investors are still anxious about how rising recession and trade war fears could influence the bank’s outlook.
Today, investors were hesitant to buy the US Dollar, amid anticipation of Federal Reserve news expected tonight and towards the end of the week.
Trade war fears have only risen, as US President Donald Trump has indicated the US will continue to take China on. According to Connor Campbell from SpreadEx:
‘That kind of talk puts even more pressure on the Fed to safeguard the American economy, meaning investors are going to be on high alert for hints that the central bank is prepared to cut rates against relatively soon when they pour over July’s meeting minutes this evening.’
ZAR Exchange Rates Bounce from Lows Ahead of Fed News despite Lower South African Inflation
This morning saw the publication of South Africa’s July Consumer Price Index (CPI) inflation rate report, which showed inflation slowing more than analysts expected.
South Africa’s monthly inflation rate only came in at 0.4% rather than the expected 0.7%, while the yearly inflation rate slowed from 4.5% to 4.0% rather than 4.4%.
The core inflation rate came in at 4.2% rather than remaining at 4.3% as forecast.
The weaker South African inflation led to higher bets that the South African Reserve Bank (SARB)
could prepare two more 25 basis point interest rate cuts before the end of 2020.
Despite all this though, the South African Rand advanced today. Investors took profit from the currency’s recent cheapest levels ahead of this evening’s anticipated Federal Reserve meeting minutes report.
According to Bianca Botes, Treasury Partner at Peregrine Treasury Solutions:
‘The Rand is steady this morning as markets prepare for the Fed minutes ... which will guide markets as to where the Fed sees interest rates and growth are headed,
While, technically, the Rand is deemed oversold, the risks in the market are too prominent for the unit to regain any significant ground.’
USD/ZAR Exchange Rate Forecast: Federal Reserve Developments in Focus
The US Dollar to South African Rand exchange rate could return to nearer its best levels in three years in the coming sessions, depending on the tone the Federal Reserve
takes in upcoming reports and speeches.
Today’s focus is the Federal Reserve’s latest meeting minutes, due for publication this evening.
As the Fed was more hawkish than expected in its last meeting, the minutes report may not cause much movement if it is similar in tone.
Either way, the upcoming speech from Fed Chairman Jerome Powell at the Jackson Hole Symposium this week is likely to be even more pivotal to the Fed outlook and US Dollar movement.
If Powell shows deeper concern about the US-China trade war or a US recession, the US Dollar may be in for further losses.
However, if the bank’s tone remains surprisingly optimistic, the US Dollar to South African Rand exchange rate could start to climb again.
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TAGS: American Dollar Forecasts South African Rand Forecasts