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Rand slips as US reaches trade agreement with Canada, Mexico

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Rand slips as US reaches trade agreement with Canada, Mexico

Photo by Reuters

2nd October 2018

By: News24Wire

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The rand slipped overnight, trading at levels over R14.20/$ on Tuesday morning, following a trade agreement reached between the US and Canada and Mexico.

The currency was trading slightly weaker (0.82%) at R14.33 by 08:45.

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The US-Mexico-Canada trade deal is expected to result in increased local content in the auto sector and will grant US producers access to Canada’s 3.5% dairy market, RMB economist Mpho Tsebe explained in a market update.

“However, the deal is only scheduled to be signed after 30 November. Nonetheless, the agreement shows that Trump is unlikely to go for a full-blown global trade war,” she said.

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Tsebe also noted the record high fuel prices, announced by the Department of Energy on Monday. The hike, which comes into effect at midnight, will push the retail petrol price to over R17/litre.

“Fuel prices have reached an all-time high and will weigh on household spending. Higher fuel prices are likely to push the SARB’s (South African Reserve Bank’s) inflation forecast higher, resulting in a breach of the 3% to 6% target band,” she explained.

“Fuel prices could also begin to weigh on food prices due to increased transportation costs. This would prompt the SARB to raise interest rates to curtail inflationary pressures. We maintain our view of one 25bp hike by the end of 2018.”

She also noted the PMI figures for September released yesterday which at 43 points is below the 50-neutral mark. “The September PMI survey casts doubt that the economy posted a strong recovery in the third quarter,” she said.

Data releases to consider on Tuesday include the EU’s Producer Price Index figures at 11:00.

Further, comments from EU finance ministers and the US Federal reserve Chairperson Jerome Powell expected on Tuesday will largely dominate market focus, said Bianca Botes, Corporate Treasury Manager at Peregrine Treasury Solutions.

Botes expects the rand to remain rangebound, between R14.10 and R14.30 to the greenback.

Analysts from NKC economics expect the rand to trade within a range of R14.20/$ and R14.40/$.

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