Rand at five-week low as Fed plays down rate cuts

The rand was weaker against major global currencies this morning.

JOHANNESBURG - The rand was weaker against major global currencies on Thursday morning, under pressure after the US Federal Reserve indicated fewer interest rate cuts may be on the way than the market expected.

The Fed cut interest rates by 25 basis point, but Fed chair Jerome Powell used the term “mid-cycle adjustment”, indicating that the world’s most influential central bank is not engaging in a new cutting cycle.

“The cut looks more and more likely the result of global concerns around trade and growth as opposed to domestic factors within the US,” said Standard Bank currency trader Warrick Butler in a note. “In other words, they are likely to be more cautious in their approach to cut rates than the market was betting.”

READ: Federal Reserve lowers interest rates

At 9.40am the rand was 0.52 percent weaker at R14.4187/$, 0.22 percent softer at R15.9209/€ and down 0.21 percent to R17.4804/£. The euro had weakened 0.32 percent to $1.1041 -- a 15-month low.

The benchmark R186 government bond was weaker, rising nine basis points to 8.4 percent. Bond yields move inversely to bond prices.

Global risk assets remained under pressure on Thursday morning, although the rand was only the third-worst-performing emerging-market currency tracked by Bloomberg.

READ: Rand recovers as focus stays on mounting government debt

“With central banks increasingly becoming the only game in town as far as the stock market rally is concerned, it could be a very interesting summer unless policymakers manage to reassure investors that a mid-cycle adjustment can include the multiple rate cuts they crave,” said Oanda analyst Craig Erlam in a note.

Markets are expected to continue to be driven by post-Fed activity, although locally, the Absa manufacturing purchasing managers index (PMI) for July is due at 11.30am.

The PMI rose from 45.4 points in May to 46.2 points in June, although second-quarter factory activity was lower than the first quarter, with the index pointing to months of declining activity.

Investment is flowing out while corporates are hoarding their cash.