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The rand feels the heat as the Fed signals it may hike US interest rates in December

by , 29 October 2015

The rand has certainly not had a good year, continuing to weaken against major currencies. One major bugbear for the local currency is the raising of rates in the US.

Until yesterday, the US Federal Reserve hadn't given any strong signals that a hike was going to happen. But this all changed as the Fed indicated that a hike could happen when the Federal Open Market Committee meets again in December.

This has pushed the rand weaker.

Let's take a closer look…

The rand is feeling the pressures of an impending interest rate hike in the US

The rand weakened this morning after the Fed hinted it may hike “interest rates at its next policy meeting,” reports Fin24. This has heightened concerns that policy tightening in the US could “trigger capital outflows from emerging markets”.

The rand followed a number of other emerging market currencies down as traders speculate about whether December will bring an interest rate hike, says IOL.

The Federal Open Market Committee’s statement also changed its stance on concerns about volatility in global financial markets and “international economic growth,” notes BDLive. Rob Bernstone, MD of equity trading at Credit Suisse, said it looks like the US are “less concerned with monitoring the rest of the world”.

The dollar rallied following the release of the Fed’s statement

The Fed’s statement led the dollar to hit a “two-and-a-half-month high against a basket of currencies,” says MoneyWeb. Standard Bank’s chief trader, Warrick Butler, said emerging market currencies will pay the price “of investor sentiment and the rand will not be left untouched”.

Traders will be watching for the release of US economic growth data covering the third quarter, which is due for release later today, adds Fin24. If the data shows the economy is growing, it backs up a rate hike in December.

At time of writing, the rand was trading at R13.77 to the dollar, R15.06 to the euro and R21.02 to the pound.

If US economic growth is strong, the bets will be on for an interest rate hike in the world’s largest economy in two months’ time.

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The rand feels the heat as the Fed signals it may hike US interest rates in December
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