Currency outlook for the week ahead and foreign portfolio flows:
The Rand commenced the week slightly weaker, having pierced the R12.00/USD barrier, on the back of US dollar strength in anticipation of the Fed’s rate decision. It did however gain some ground during the week, in part on the back of higher global commodity prices and dollar weakness following a more dovish than expected FOMC announcement. At the time of writing the domestic currency was trading at 11.85/USD, 16.71/GBP and 14.60/EUR, having strengthened by 1.4%, 0.9% and 1.5% against these currencies respectively, since the beginning of the week.
We are further expecting the MPC’s rate announcement on Wednesday 28th. The lower CPI inflation figure of 4.0% released on Tuesday 20th March, does not necessarily signal lower interest rates as the SARB bases its interest rate decisions on what CPI inflation is likely to be six to twenty four months in the future, not what it has come out recently at. CPI inflation is likely to average around 5.5% for next year, and over the longer-term and so the SARB is unlikely to cut interest rates on this basis.
In the week ahead, the rand is expected to trade in a range of R11.26/USD – R11.76/USD, R14.03/EUR - R14.53/EUR and R16.13/GBP - R16.63/GBP.
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