South African rand weakens, focus on upcoming US data

British Pound

Reuters: The British pound drifted near more than three-week lows against the dollar on Tuesday as investors assessed geopolitical risks in the Middle East and the next steps in the Bank of England's easing cycle. Sterling tumbled last week after BoE Governor Andrew Bailey was quoted as saying the central bank might move more aggressively to lower borrowing costs. The pound firmed to $1.30945, about 2.5% below its more than two-and-a-half year peak in late-September when speculation about a slower easing cycle from the BoE boosted its appeal versus most major currency pairs.

"With inflation remaining stubbornly high, the real economy picking up and the prospect of a more stable government, we expect the pound to remain well supported in the coming months," said Michael Pfister, FX analyst at Commerzbank. "However, recent comments from the BoE have increased the risks, and it remains to be seen whether the hopes associated with the change of government will be realised." The euro ticked 0.1% higher to 83.92 pence. Latest data showed British shoppers faced increased pressure on their budgets last month after grocery price inflation edged higher.

"Sterling looks to be under more pressure, with GBP-USD slipping below 1.31 ahead of UK monthly GDP figures and industrial production data on Friday," strategists at Unicredit said in a note. The usually more market-moving releases, including UK jobs data and the consumer price index report, are due next week. Later in the month, investors will look to the first tax-and-spending budget statement on Oct. 30 from the new Labour government of Prime Minister Keir Starmer. Finance minister Rachel Reeves needs to strike a positive tone at her first budget in order to give businesses the confidence to invest, the Confederation of British Industry said on Tuesday.

US Dollar

Reuters: The dollar drifted sideways on Wednesday, giving some relief to the yen and other major currencies after a sharp rally to a seven-week high last week, as investors paused to assess the interest rate outlook for the United States. The New Zealand dollar slumped to its lowest since Aug. 19 at $0.60705, after the Reserve Bank of New Zealand cut interest rates by 50 basis points and left the door open to yet more aggressive monetary easing. The sparse U.S. data calendar this week provides a pause after the strong jobs report last Friday sent the dollar rallying and had markets tempering the expected scale of upcoming interest rate reductions.

On Wednesday, investors will get minutes of the Federal Reserve's September meeting, which will show discussions about what at the time had appeared to be a deteriorating labour market that ended with all but one policymaker agreeing to a 50-basis point cut. But the robust nonfarm payroll data has seen markets reprice near-term Fed rate cut expectations. Investors now have about an 85% chance of a quarter basis point reduction priced in, as well as a slim probability the Fed will leave rates unchanged, the CME FedWatch tool showed.

The U.S. September Consumer Price Index report on Thursday will be the main piece of data this week. "U.S. inflation data this week and upcoming corporate earnings will be key to sustaining the U.S. dollar rebound and will need to reinforce the US exceptionalism narrative," analysts at Westpac IQ wrote in a note. The dollar index, which measures the greenback against a basket of currencies, edged up 0.11% to 102.6, not far from Friday's seven-week high of 102.69. The euro was down 0.14% at $1.0965, while the pound slid 0.15% to $1.3083, close to the more than three-week low of $1.30595 it touched on Monday.

Dollar/yen traded in a narrow range, last hovering around 148.35 yen, after touching a seven-week high of 149.10 on Monday. "Markets will not be keen to pile into JPY shorts ahead of election uncertainty for both the U.S. and Japan," said Wei Liang Chang, a currency strategist at DBS. The yen has been whiplashed since Japan's new Prime Minister Shigeru Ishiba, known for being a critic of easy monetary policy, surprised markets with recent remarks that the nation is not ready for further rate hikes.

Ishiba has set a snap election for Oct. 27, ahead of the Bank of Japan's October monetary policy meeting and the U.S. presidential election next month. Verbal warnings about rapid currency moves issued by Japanese authorities earlier this week should "further restrain" dollar/yen from rising to the 150 range, Chang said. Elsewhere, the kiwi was last down 0.77% at $0.60885 as investors assessed the RBNZ's policy decision and its clear dovish signal suggesting many more rate reductions were on the cards in coming months. A majority of economists in a Reuters poll had predicted Wednesday's 50 bps cut.

The Australian dollar was licking its wounds, having slid on Tuesday to $0.6715, its lowest since Sept. 16, after minutes from the latest meeting of the nation's central bank came off as dovish. It last traded not far off that low, down 0.31% at $0.6726. Investors remain focused on China after a volatile day in Chinese and Hong Kong markets in the previous session. Beijing said on Tuesday it was "fully confident" of achieving its full-year growth target but refrained from introducing stronger fiscal steps, disappointing investors who had banked on more support from policymakers to get the economy back on track. The offshore yuan was mostly unchanged at 7.0704 per dollar.

South African Rand

Reuters: The South African rand weakened on Tuesday, and is likely to take direction from U.S. inflation data and minutes from the Federal Reserve's September meeting due this week. At 1525 GMT, the rand traded at 17.58 against the dollar, 1.12% weaker than its previous close. Minutes from the Fed's September meeting due on Wednesday are expected to explain the central bank's big rate cut last month, possibly offering further clues to the bank's future path on interest rates. Focus will then turn to U.S. September inflation figures on Thursday, which could provide signs of disinflation, crucial for shaping Fed policy.

"The USD/ZAR is influenced by U.S. CPI data, the Fed’s monetary policy direction, and the U.S. election," said Andre Cilliers, currency strategist at TreasuryONE. "The dollar remains strong, supported by solid U.S. jobs data, while the ZAR awaits further clarity on these factors." Like other risk-sensitive currencies, the rand often takes cues from global drivers such as U.S. monetary policy in addition to local economic indicators. On the Johannesburg Stock Exchange, the blue-chip Top-40 index closed 0.95% lower. South Africa's benchmark 2030 government bond was weaker, with the yield up 2.5 basis points at 9.235%.

Global Markets

Reuters: Chinese shares fell on Wednesday and commodities nursed sharp losses as investors tempered enthusiasm for a Chinese economic recovery, while broader markets steadied on expectations that the U.S. economy can avoid recession and support global demand. The New Zealand dollar fell 0.6% after the central bank cut interest rates by 50 basis points and sounded downbeat about the economic outlook, leaving the door open to more cuts. MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.6% as Hong Kong shares rebounded about 2% after notching their heaviest fall since 2008 the day before.

Hong Kong markets tanked on Tuesday, mainland shares were knocked from highs and commodities from oil to metals slid when a news conference from China's National Development and Reform Commission yielded no major new stimulus details. The Shanghai Composite and blue-chip CSI300 slumped around 3% on Wednesday. Brent crude futures, which fell 4.6% overnight, steadied at $77.79 a barrel. Iron ore found support at $106 in Singapore after a 5% slide on Tuesday. "The disappointment, while understandable, appears premature and misguided," Mizuho's head of macro research for Asia ex-Japan, Vishnu Varathan, said in a note to clients.

"Fact is, it is not the NDRC's place to provide details on fiscal stimulus or a further monetary policy push." Japan's Nikkei rose 1%, with shares in convenience store Seven & I Holdings leaping after Bloomberg News reported Canadian retailer Alimentation Couche-Tard would raise its buyout offer. U.S. equity futures were broadly steady in Asia, following solid gains in cash trade overnight as a handful of Federal Reserve officials sounded positive about the prospects of managing interest rate levels for a soft economic landing.

Influential New York Fed President John Williams told the Financial Times that last week's unexpectedly strong jobs report for September showed the economy was healthy, while falling inflation left room for rates to be lowered over time. Traders had dialled back expectations the Fed could again cut rates by 50 bps in November and currently price about an 88% chance of a 25 bp cut. Treasuries steadied overnight following recent selling, leaving U.S. two-year yields at 3.96% and 10-year yields at 4.01%.

The U.S. dollar has drawn support from higher yields and inched up to trade at $1.0968 per euro and held steady at 148.25 yen. The Australian dollar was marginally weaker at $0.6738 and traders assessed the Reserve Bank of New Zealand as preparing for further cuts ahead. At $0.6096 the kiwi was trading at a seven-week low and testing its 200-day moving average. "While today's meeting did not provide updated forecasts and wasn't accompanied by a press conference, the forward guidance in the decision statement sounded dovish, allowing the RBNZ the flexibility to cut rates again before year-end," said IG Markets analyst Tony Sycamore. Minutes from the Federal Reserve's September meeting - where U.S. rates were cut 50 bps - are due later in the session, along with appearances from the Fed's Raphael Bostic, Lorie Logan and Mary Daly.

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