A stronger rand could mean good news for consumers given that it will help keep a lid on inflation. The rand remained below R16.90 to the US dollar on Friday, boosted by upbeat global risk sentiment and a weaker greenback following recent US interest rate cuts. This could mean good news for consumers, given that it will help keep a lid on inflation.
As of noon, the local currency was trading at R16.85, having hovered below R17 to the greenback for several weeks now. Wichard Cilliers, head of Market Risk at TreasuryONE, attributed this to a weaker dollar. That currency was “trading flat this morning after falling yesterday in the wake of the Fed rate cut and softer jobless claims data”.
In addition, Cilliers noted that markets are winding down for the holiday season. “Risk sentiment is still upbeat, keeping risk-sensitive currencies on the front foot,” said Cilliers of the currency that had previously been notoriously volatile. PSG Financial Services chief economist Johann Els said the Fed’s rate cut helped weaken the dollar, giving the rand a boost, while domestic improvements also supported the currency.
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Els added that South Africa’seconomic growth rate, which was 0.5% quarter-on-quarter, also helped the currency as this was “a little bit better than expected”. Other benefits to the currency included aratings upgrade by S&P, the first time the rating had been upgraded in two decades, explained Els. He added that being removed from the greylist was also beneficial.
“There’s been awhole bunch of economic factorsthat have started helping in terms of the rand,” said Els. A stronger rand helps lower inflation, making imports, including fuel and essential goods, cheaper. Reduced transport and production costs ease price pressures andlimit the need for aggressive interest rate hikes by the South African Reserve Bank. The local currency is benefitting from a weaker dollar.
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