Rand weakens ahead of Fed decision

Good morning

Granted, today’s main events only kick off long after our market has closed but the day is a pivotal one for both the currency and the equity markets while the next 48 hours as a whole are packed with market moving events.  It will be interesting to see how the dust has settled by the time we get to Friday… 

These are the mid rates at 5:40 today:

Market News

• After last week’s blowout for the Rand things were improving slightly over Monday and most of Tuesday and we managed to touch R16.65 to the Dollar as yesterday’s best level.  Unfortunately just as it looked like we would get to the week’s key focal points without event we then heard of renewed friction in the Middle East, a development that is always Dollar positive and we’ve given up those gains by going into today at R16.75. 
• Today is still going to mainly be about FED speculation, followed by FED action at 8:30pm our time, but once again the market has had to react to a “ceasefire” that wasn’t worth the paper it was written on.  After two weeks of exchanging attacks the US and Iran abruptly halted hostilities over the weekend with some reports suggesting that another 10 day ceasefire had been agreed to allow talks to resume while others were a little more cynical in their suggestion that the US just needs time to restock their diminishing weapons stockpile.  Either way, the cessation of attacks sent oil lower and weighed on the Dollar which in turn let the Rand strengthen to R16.65.
• Messaging from Iran over the weekend was that they will agree to the latest ceasefire just as long as the US doesn’t strike them again, which seems obvious, so it was a little surprising to hear that the US had to intercept a number of Iranian missile attacks yesterday that were unprovoked and apparently aimed at US resources based in Jordan.  Yet again the ceasefire is over almost as soon as it started but thankfully this escalation has not pushed the price of oil up yet which hopefully means our exchange rate isn’t too exposed to further losses. 
• The market will keep an eye on Middle East developments but its primary focus will be on the FED’s monetary policy announcement tonight, and to a lesser extend the quarterly earnings reports from Microsoft and Meta.  While bets of a FED interest rate hike today have increased recently the chances are still quite slim, but with the market now betting that a September rate hike sits at a 95% probability there is a strong chance that the FED will use today’s meeting to prepare the market for that move.  FED Chair Kevin Warsh’s language will be scrutinised for any hawkish comments, and if he is seen to be in favour of a September hike then the Dollar will move higher at our expense.
• The following is from Reuters which reminds us that the Dollar, while likely to enjoy the FED announcement, is also open to some pain if things go differently:  The Dollar’s resilience reflects a sharp ⁠repricing of FED expectations in recent months. “Traders are taking steps to preserve liquidity and are adding to Dollar longs ahead of Wednesday’s decision,” ‌said Karl Schamotta, chief market strategist at Corpay in Toronto. “On the face of it the setup seems bullish for the Dollar either way: an outright hike would deliver an unequivocal boost, while a hawkish hold would ​simply push expectations into September,” Schamotta said. He warned, however, that speculative positioning in favour of the Dollar was stretched and that any hint of a more dovish approach from policymakers could trigger a violent unwind.
• Plenty for the market to digest later tonight, and then tomorrow we get the FED’s preferred US inflation reading, quarterly reports from Apple and Amazon and no doubt a few updates on developments in the Middle East.  We’re already halfway through the week but most of the action still lies between us and the weekend. 
• Local market data today sees our private credit extensions at 8:00.
• Possible USD mid rate trading ranges in the Rand today are R16.60 and R16.90.

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