Rand-Dollar Exchange Rate Today: Fed Hike Bets Lift USD

Good morning

The Democrats took a clean sweep in last week’s US elections. Because of that, there will probably be a few policy headlines that move the market over the coming weeks. However, we will also see focus shift back to the FED and what they might do with interest rates. Unfortunately, last Friday that speculation gave the Dollar a boost.

These are the mid rates at 6:35 today:

USD = R16.50
AUD = R11.37
GBP = R22.06
DXY = 102.15
EUR = R18.40
Brent Crude = $98.24 per barrel

Market News

The Rand and the Dollar today

• We go into the new week with the market still digesting the recent election results, both locally and abroad. Geopolitical and economic data headlines are now coming back onto the radar.
• Fortunately for the Rand, these two forces look like they are cancelling each other out. We open today at R16.50 to the Dollar, slightly below Friday’s worst level of R16.58.
• However, tomorrow sees the next major US data release. We will have to wait and see how the rest of the week goes.

US jobs data and the FED

• Interest rate differentials always play a big part in determining currency price movements. On Friday, the Dollar found support thanks to increasing expectations of a FED rate hike in December.
• The market expected the monthly US labour report to show 65 000 new jobs added in October. However, the actual reading smashed the forecast with a massive 165 000 new jobs. The September report result also came in higher after a revision, from 29 000 to 60 000.
• As a result, the US unemployment rate dipped from 4.2% to 4.1%. Their labour market is clearly in a position of strength, and their economy is also humming along. That opens the door for a December hike, which is why we fell to R16.58.
• Another factor that points to a more aggressive FED is the scale of the Democrats’ victory. It might reduce Donald Trump’s pressure on the FED for lower rates. The following is from Bloomberg:

Donald Trump’s sweeping rebuke by voters could lift a shadow from FED Chair Kevin Warsh, allowing him to focus — with less political distraction — on bringing inflation to heel. “The question is whether, with the president’s grip on the country being loosened and voters clearly saying the cost of living was the number one issue in this election, does Kevin Warsh and the FED read that signal and do their job?” Daleep Singh, chief global economist at PGIM, asked Wednesday on Bloomberg Television. “Our view is, yes.”

Oil, Iran and the week ahead

• Fortunately, it isn’t all bad news for the Rand. Yesterday Donald Trump said that renewed military strikes on Iran are possible, a scenario he had alluded to before last week’s elections. However, he also said that at present he prefers to give diplomacy more time to resolve.
• With the threat of imminent strikes seemingly off the table, oil has dropped slightly, with Brent Crude down to $98/barrel. This also gives risk assets like the Rand a little breather.
• Looking at the week ahead, all eyes will be on tomorrow’s US consumer inflation report. It gives the next major clue as to what the FED might do on the 9th of December. In addition, 14 FED members speak this week, and we will watch closely their comments on the chances of a hike next month.
• No local market data today.
• Possible USD mid-rate trading ranges in the Rand today are R16.40 and R16.70.

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