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Poorer than expected US GDP data gives the rand some respite, for now…

by , 30 October 2015

Since the medium-term budget, the rand has been under immense pressure.

With the US Federal Reserve indicating on Wednesday that an interest rate hike is on the cards in December, the rand faced renewed headwinds.

But with data out of the US yesterday showing weaker than expected economic growth, the rand has clawed back some of its losses.

Let's take a closer look…

The rand benefitted from poorer US GDP data

After trading at its weakest levels in four weeks, the rand has strengthened slightly in early trade today, reports Fin24. This was thanks to “marginally weaker-than-expected US growth data,” which saw investors moving back into emerging market currencies.

But the rand’s battle isn’t over yet.

Later on today sees the release of current account balance data for the third quarter, says BDLive. This could decide the shorter-term fate for the rand.

Economists expect another trade deficit for last month, which “would indicate a widening of the current account deficit in the third quarter,” adds BDLive. This could result in further weakness for the local currency.

But Peter Worthington, economist with Barclays, said they expect a smaller than forecast trade deficit today, says MoneyWeb. This could be positive for the rand.

An impending US interest rate hike is putting pressure on the rand

Continuing speculation that the Fed will raise interest rates in December is “luring investments to dollar assets,” says Bloomberg. This isn’t good news for the rand and could fuel inflation higher.

Before the release of trade data later on, Warrick Butler, a currency strategist with Standard Bank, believes the rand will strengthen to 13.75 to the dollar, reports Fin24. But he doesn’t see the currency managing to pass this level.

At time of writing, the rand was trading at R13.79 to the dollar, R15.18 to the euro and R21.15 to the pound.

So tough times ahead for the rand as the odds continue to stack up against the local unit.

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Poorer than expected US GDP data gives the rand some respite, for now…
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