Home South African Pressure on rand ahead of US election

Pressure on rand ahead of US election

213
SHARE

The SA currency remained under pressure as market jitters surrounding US elections and surging infections across the globe fed into risk-off sentiment

JOHANNESBURG – The South African currency remained under pressure as market jitters surrounding United States elections and surging infections across the globe fed into risk-off sentiment according to NKC Research.

We expect the FOMC (Federal Open Market Committee) will maintain its extremely accommodative monetary policy stance at its policy meeting this week, holding off any new initiatives.

The overlap between the meeting and the US election and the deteriorating health situation will favour a wait-and-see approach given the uncertain fiscal policy outlook.

Meanwhile, the Fed’s emergency lending facilities have only been tapped to modest degree, however, policymakers view the facilities’ availability as a backstop that is key to help sustain market functioning and keep financial conditions accommodative.

Therefore, with most of the emergency lending facilities slated to expire at the end of this year we look for the FOMC to extend the operational deadline for these programmes into 2021.

At the close of local trade, the rand quoted little changed at R16.26/$, after trading in range of R16.20/$ – R16.33/$.

Absa PMI starts Q4 on a strong footing

The Absa purchasing managers’ index (PMI) rose from a revised 58.5 points in September to 60.9 points in October, starting 2020 Q4 on a very strong footing.

While easing somewhat last month, both the business activity (at 62.8 in October) and new sales orders (67.0) sub-indices remain at robust levels, while the inventories index was another important contributor to the October reading: the latter sub-index rose from 51.0 in September to 61.1 in October – the highest reading in over 13 years.

The employment index recorded a fifth-consecutive improvement but, at 49.1, remains just below the 50-point threshold. This suggests that employment levels are stabilising.

However, the sub-index has been in contractionary territory since mid-2016 and the October figure suggests job losses persist, albeit at a much lower rate. Following strong readings north of 60 points in the preceding two months, the index tracking expected business conditions in six months’ time dropped to 56.7 points in October.