Receive Focus insights straight to your inbox
Sign up to the Focus newsletter for regular insights from Investec experts.
The rand is near R19.00/USD, disappointed after CPI US inflation data (particularly the core measures) last week showing continued stickiness, with markets pushing back expectations of the first US rate cut to the end of Q3.24.
Friday saw a further release of inflation measures, with the U. Michigan 1 yr inflation (expectations) reading jumping to 3.1% y/y, from 2.9% y/y previously, with expected outcome of 2.9% y/y as well, while the sentiment reading dropped lower.
The U. Michigan 5-10 Yr inflation survey showed still high consumer expectations, as inflation longer-term is viewed at 3.0% y/y, above the last reading of 2.8% y/y, which was the expected outcome.
High (above the FOMC’s implicit inflation target of 2.0% y/y) consumer expectations of inflation make Central Banks’ tasks of targeting inflation more difficult, particularly if inflation expectations are rising, and expected to do so over the longer-term.
Last week’s shift in financial market expectations for the US interest rate trajectory has solidified, strengthening the US dollar. This week there is little on inflation due out in the data releases, but there are some readings on the economy for release.
The US dollar’s strength over the course of last week aided the rand weaker, boosted by the higher than forecast US inflation outcomes. Additionally, the ECB has signalled it may soon cut interest rates, which could add to US dollar strength.
ECB monetary authorities have indicated they may cut at their upcoming June monetary policy meeting, on the 6th, and have disassociated themselves from the Fed’s rate moves, stating“we are data-dependent, not Fed-dependent".
The IMF also released its WEO (World Economic Outlook) chapter on growth last week, highlighting that its “projections for global economic growth in the next five years have steadily declined since the global financial crisis” (GFC).
While the rand has become less volatile than earlier in the year, and last year, with markets waiting both for the start of the US rate cut cycle, and for SA’s, although the former will have the greatest influence on the rand.
About the author
Annabel Bishop
Chief Economist of Investec Ltd
Annabel holds an MCom Cum Laude (Economics and econometrics) and has worked in the macroeconomic, risk, financial market and econometric fields, among others, for around 25 years. Working in the economic field at Investec, Annabel heads up a team, which focusses on the macroeconomic, financial market and global impact on the domestic environment. She authors a wide range of in-house and external articles published both abroad and in South Africa.
