RAND ANALYSIS
- South African lockdown restrictions eased.
- Fed interest rate decision on Wednesday.
- Shooting star printing on daily chart.
ZAR FUNDAMENTAL BACKDROP
TOUGH DECISIONS FOR SOUTH AFRICAN PRESIDENT
President Cyril Ramaphosa announced on Sunday evening that the country would be moved to Alert Level 3 from Level 4 which reduces limitations on COVID-19 protocols. Restaurant and hotel trading, interprovincial travel and the resumption of alcohol sales (at pre-defined times) are some of the key highlights to prior economic constraints. The President also emphasized the negative economic impact of the recent civil unrest which will likely hamper any forecasted rand[1] gains.
SPOTLIGHT ON TAPER TALK AS NO POLICY CHANGE ANTICIPATED FROM FEDERAL RESERVE[2]
The Fed meeting on Wednesday (see calendar below) will have financial market participants glued to their screens as any additional clarity on tapering will be welcomed. Fed Chair Jerome Powell has thus far stuck to the transitory stance regarding inflation as well as their large focus on the labour market which has yet to reveal employment anywhere near desired levels.
Source: DailyFX economic calendar[4]
In June, we saw the Fed dot plot shift to 2023 from 2024 which surprised markets. This may not be the case in this meeting however, with market conditions changing constantly anything can happen. U.S. treasury yields have been headline news of recent as 10-year yields fell this week to 1.2813% (as of this writing). These lower yields are supportive of monetary stimulus which will ratify those with hawkish viewpoints.
Traditionally, Emerging Market (EM) currencies[5] tend to abate when upcoming Fed announcements appear on the calendar. This usually favors a move to the “safer” dollar[6] as volatility is sucked from
