More good US data could send rand to R15/$

Carin Smith

Cape Town - The big question for next week is whether the SA Reserve Bank's Monetary Policy Committee (MPC) will decide to hike interest rates on November 19 or not, Wichard Cilliers, director and chief dealer at financial services provider TreasuryOne said on Tuesday.

"Whether they hike or keep the interest rate unchanged, a lot will ride on the rand and the movements of the currency this week," said Cilliers.

"Should the rand fail to arrest its slide, we could see the MPC act quickly to stop the slide and pre-empt the Fed move in December."

He said the feeling is that the US Federal Reserve needs to raise rates sooner rather than later in a bid to stabilise and calm down the markets.

The probability of a December Fed hike jumped from below 50% to 71% after the release of positive non-farm payroll numbers.

"In the wake of these positive numbers, the rand took some body blows and weakened to its worst ever levels of 14.2650 to the dollar," explained Cilliers.

"This week the market will mostly be driven by the fallout from the US non-farm payroll number. Previously we have seen how a bad payroll number out of the US caused the rand to strengthen from R14 to the dollar to R13 to the dollar."

He added that the expectation is that the rand will not run to R15 to the dollar based on the payroll numbers alone, but should the numbers out of the US continue to be impressive, a rub on R15 could not be dismissed.

"The fear is that with emerging market (EM) currencies on the back foot already, another bout of bad data out of China could spell even worse news for these currencies," said Cilliers.

"The US dollar sentiment is firmly positive at the moment, and most currencies are under severe pressure due to the rampant US dollar. With the US dollar on the front foot, expect rand gains to be limited and very short lived should some pull back occur."

He cautioned, however, that a December Fed hike is not set in stone.

"But with the positive non-farm number, along with a better than expected wage increase and unemployment dropping to 5%, a couple of important indicators need to go haywire in the next month to seriously dent expectations of a lift off," he said.

One of these numbers coming up is the US retail figures out on Friday.

"Whether the retail figure picks up or the average American is saving more and cutting down on debt, both situations are positive for the US. Only a horrible number will cause the market to rethink their expectation," he said.