Rand kicks off 2016 on back foot

JOHANNESBURG – The rand was weaker against major currencies yesterday morning at the start of what will be a risk-intensive week for markets.

At 8.40AM the rand was trading at 15,5803 against the dollar from a previous close of 15,4800.

Against the euro, the rand was at 16,9665 from 16,8386 and had dropped to 22,9644 against the pound from 22,8095.

The euro was at $1,0891 against the dollar from $1,0875. Myriad data is due from the US in the coming days.

Tomorrow, the world’s largest economy will release its trade balance for November as well as the minutes from the last Federal open market committee meeting.

On Friday, the US will release non-farm payroll data as well as the unemployment rate for December. On the same day, China will release its trade balance data for December.

The rand is sensitive to data from the above economies. Meanwhile in the year ahead, the increasing likelihood of a sovereign downgrade to junk status suggests that the rand would remain under pressure in the upcoming weeks, MMI Holdings economist Sanisha Packirisamy said.

The rand will also be moved by the pace at which the US Federal Reserve raises interest rates in that country after having raised them last month, for the first time in almost 10 years.

Any dollar strength from future Fed decisions would cause capital outflow from SA, causing rand weakness.

The opposite will lead to some strengthening in the rand.

However, the negative consequences of a weak rand go beyond just inflation.

A weak rand makes imports more expensive.

If imports grow faster than exports, the trade deficit will widen. It will in turn cause a widening of the current account and cause further rand weakness. – BDLive

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