Rand Eyes Fed Decision as Dollar Strengthens

Good morning

FED Wednesday has arrived, and while we’ll have to wait until much later tonight for the actual event, the Rand is definitely hoping for a dovish surprise, as right now our exchange rate is staring down a monthly loss against the Dollar with just a few trading sessions left to go.

These are the mid rates at 5:50 today:

USD = R16.66	AUD = R11.62
GBP = R22.16	DXY = 102.40
EUR = R18.53	Brent Crude = $115.32 per barrel

Market News

• As was to be expected, there is very little to report in terms of movements across the currency market, as traders have largely sat on the sidelines ahead of tonight’s FED announcement.  But what little movement we have seen has unfortunately been in favour of the Dollar, with our exchange rate gradually sliding from R16.62 on Monday morning to R16.69 as yesterday’s worst level, although we did have a quick look at R16.59 yesterday morning.  We open today at R16.66.
• While the Dollar suffered a slight pullback last week thanks in part to concerns around the US equity market, and the AI trade in particular, this week has seen a return of Dollar strength thanks to a rebound in tech shares as well as the market gearing up for FED messaging tonight that could point to an interest rate hike in December.  Chances of a hike tonight are all but zero, so the market will be hanging on every word from Chair Kevin Warsh in his post-meeting press conference, even though Warsh is well known to give as little forward guidance as possible.  The scenario for the Rand is clear: if the FED and/or Warsh indicate a December hike, that will be bad for us, but if they come across as wanting more time to assess incoming data, that will be good for us. 
• The FED meeting is at 8 pm tonight, followed by Warsh’s press conference at 8:30 pm, and the following from Reuters underlines that the market will react to any definite language, should it materialise:  The US Dollar held at a two-week high on Wednesday ahead of policy decisions from central ​banks, with the FED widely expected to leave its policy interest rate ‌unchanged while signalling the probability of any December move. “The FED doesn’t need to hike today to move markets,” said ​Chris Weston, ⁠head of research at Pepperstone Group in Melbourne. “It simply needs to change the perceived probability of hiking in December.”
• FED headlines will dominate the currency market today and tomorrow at least, but Middle East headlines still rumble on, and while oil has retreated from its multi-month highs, with Brent Crude “down” to $115/barrel, this is still a worryingly high level.  Reports suggest that Iran’s Security Chief met with delegates from Saudi Arabia, Turkey and Pakistan on Monday, which he followed up with a meeting with Iran’s Supreme Leader yesterday, and while similar talks have delivered no material outcomes over recent months, the market is still reacting in hope with slightly lower oil prices.   
• On the local front, we had a welcomed improvement in our Leading Business Cycle Indicator report yesterday, which was expected to go from -0.8% to 0.3% but which surprised to the upside with a healthy 1.1% advance.  This better-than-expected result takes the measure to a 5-month high and was probably why the Rand managed to touch R16.59 yesterday morning, but unfortunately those gains were quickly given back thanks to Dollar strength. 
• No local market data today. 
• Possible USD mid-rate trading ranges in the Rand today are R16.50 and R16.80.

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