South African rand gained before data-heavy end to the week

Reuters: The South African rand gained on Tuesday ahead of a raft of domestic and international data releases due later this week.

SOUTH AFRICAN RAND GAINED

At 1020 GMT, the rand traded at 18.5100 against the dollar, 0.4% stronger than its previous close. Analysts struggled to pick out a local driver, saying one factor helping the risk-sensitive rand was a decline in U.S. Treasury yields from the previous week’s highs.

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“Whether this positive market sentiment can be sustained remains to be seen and will likely depend on U.S. labour market data scheduled for release in the coming days” that could influence the Federal Reserve’s interest rate plans, said Danny Greeff of ETM Analytics. “This will give U.S. Treasuries and the dollar something trade on, with the rand still a passenger to their movements at the moment,” he added.

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South African data releases this week include July money supply, private sector credit and budget numbers on Wednesday, and July producer inflation and trade figures on Thursday. Those data points will shed light on how Africa’s most industrialised economy was performing early in the third quarter. On the Johannesburg Stock Exchange, the blue-chip Top-40 index last traded about 0.2% weaker. South Africa’s benchmark 2030 government bond also fell, with the yield up 4.5 basis points to 10.205%.

U.S. DOLLAR

Reuters: The U.S. dollar on Wednesday clawed back some of the previous session’s sharp declines as investors looked ahead to more labour market data for clues on the path for Federal Reserve policy. The dollar index – which measures the currency against six major peers including the yen and euro – added 0.09% to 103.64 as of the Asian afternoon. On Tuesday, the index had slumped 0.39% for its worst day in a month and a half, after a slide in JOLTS job openings to a 2-1/2 year low spurred traders to pare bets for further U.S. rate hikes.

“With traders now sensitive to weaker U.S. data in hopes of the Fed’s peak rate, I’d expect USD bears to pounce on the back of any data which backs up the JOLTS jobs report,” said Matt Simpson, a market analysts at City Index. “Whilst this brings excitement that yields and the U.S. dollar have topped, we’d warrant some caution given it was in response to second-tier employment data, and there is plenty of more data to come out this week,” culminating in Friday’s monthly non-farm payrolls report, Simpson added.

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The two-year U.S. Treasury yield , which is most sensitive to expectations for Fed policy, slumped as much as 18 basis points to 4.871% on Tuesday, before recovering to around 4.91% in Asian trading hours.The 10-year yield edged off Tuesday’s low of 4.106%, a level last seen on Aug. 11, to stand at 4.1354%. The dollar rose 0.23% to 146.205 yen. On Tuesday, it had surged to a 10-month peak at 147.375 leading into the JOLTS report, only to end the day with a 0.45% decline.

Levels this high spurred the first yen buying intervention by Japanese officials in a generation last autumn. Bank of Japan board member Naoki Tamura reiterated on Wednesday that the central bank is watching closely the effects on the economy of a weak yen when conducting policy. The euro edged down 0.18% to $1.0860 after rallying 0.56% overnight. Money market traders currently place 86.5% odds for the Fed to keep rates steady on Sept. 20, although the odds for a hike at the following meeting in November are close to 50/50.

Investors had raised hawkish Fed bets recently amid a spate of resilient data. Fed Chair Jerome Powell said on Friday that further tightening may be needed to cool still-too-high inflation, but also promised to move with care. Meanwhile, Australian inflation slowed to a 17-month low in July, reinforcing the case for the Reserve Bank of Australia to hold rates steady at its policy meeting next week. The Aussie dollar dipped as much as 0.46% after the data but eventually shook the data off to trade little changed at $0.64775.

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The Chinese yuan weakened slightly in offshore trading to 7.3002 per dollar, but remained well above the Aug. 17 low of 7.3490. The People’s Bank of China set the official mid-point for onshore trading at 7.1816, around 1,000 pips firmer than the Reuters estimate, something it has done every day since the middle of the month. Elsewhere, bitcoin eased 0.94% to $27,465, after surging more than $2,000 in the previous session to hit a nearly two-week top at $28,142.

The world’s leading cryptocurrency was bought aggressively following a court ruling that could pave the way for a first-of-its-kind spot bitcoin exchange traded fund. In the week and a half prior to that, it had been treading water around $26,000. “There is still work needed to get a full green light to roll out a spot ETF, but we’re certainly a step closer,” Chris Weston, head of research at Pepperstone, wrote in a client note, adding the price could head to $29,200. “Shorts will be concerned with holding exposures ahead of further news flow.”

BRITISH POUND

Reuters: The pound ticked higher against the dollar and euro on Tuesday as traders await comments by Bank of England Chief Economist Huw Pill later this week for more direction on the central bank’s next move. Sterling was up 0.10% at $1.2614 at 1000 GMT. It was 0.13% higher against the euro at 85.75 pence , recovering having softened to its weakest in two weeks against the single currency the day before. “The pound seems to be moving in line with other pro-cyclical currencies today. There are not many data inputs from the UK this week,” said Francesco Pesole, FX strategist at ING, instead pointing to non-UK data due later this week.

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Shares and other currencies, such as the Australian dollar, that rise when traders are positive about the global economy were also trading higher on Tuesday. Pesole said he expects the pound to perform better against the dollar than the euro this week, forecasting eurozone inflation data due this week to be higher than expected. Traders are currently betting on a more than 90% chance of a 25 basis point hike from the Bank of England at its next meeting on Sept. 21.

The BoE raised interest rates for the 14th time since late 2021 on Aug. 3 as it continued to try to calm inflation. Pill is due to speak on Thursday morning at the South African Reserve Bank Biennial conference, after BoE Deputy Governor Ben Broadbent said at the weekend that interest rates in Britain might have to stay high “for some time yet”.

“Coming on the back of Broadbent’s statements at Jackson Hole, Pill may well choose to echo the idea of a ‘high for longer narrative’ which should be sterling supportive in isolation,” said Nicholas Rees, FX market analyst at Monex. “We don’t think this will lead GBPUSD back above 1.27 on its own accord, mainly because the recent string of UK data suggests the ‘higher’ level is below the terminal rate priced into GBP OIS,” he said referring to a closely-watched swap curve that reflects rate expectations. The pound is down 1.7% against the dollar so far this month.

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GLOBAL MARKETS

Reuters: Asian equities rose on Wednesday and the dollar wobbled as weak U.S. labour data bolstered bets that the Federal Reserve was likely done with its interest rate hikes, while beaten-down China stocks rose for a third straight day. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.86% to a two-week top and is on a three-day winning streak. The index though is down 6% in August and set for its worst monthly performance since February. Japan’s Nikkei was up 0.5%, while the Australia’s S&P/ASX 200 index rose 0.64%.

China shares have gained this week following the announcement of measures to lift investor confidence, including halving the stock trading stamp duty, loosening margin loan rules, and putting the brakes on new listings. In early trading, the blue-chip CSI 300 Index was 0.3% higher, while Hong Kong’s Hang Seng Index rose 0.75%. Analysts though see a need for more action from Chinese authorities to sustain the rally. “It will take more resolute policy measures and a sustainable recovery in earnings in order for the rally to last,” Carlos Casanova, senior economist for Asia at UBP, said.

Investors’ focus will be on PMI data from China later this week that will highlight the state of the economy. Overnight, Wall Street ended sharply higher, while Treasury yields slid to three-week lows after data showed U.S. job openings dropped to the lowest level in nearly 2-1/2 years in July, signalling easing labour market pressures. “‘Bad news is good news,’ as the data supported bets for a sooner end of the Fed’s hiking cycle despite the recent hawkish rhetoric of Fed Chair Powell,” Tina Teng, markets analyst at CMC Markets, said in a note.

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With the Fed highlighting that the interest rate path will be heavily dependent on data, traders are tweaking their bets based on the latest indicators. Markets are pricing in an 89% chance of the Fed standing pat at its meeting next month, the CME FedWatch tool showed, and are now pricing in a 50% chance of another pause at the November meeting compared with a 38% chance a day earlier. A much clearer economic picture will likely be revealed later in the week when U.S. payrolls and personal consumption expenditure reports are due.

U.S. Treasury yields were stable in Asian hours. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 1.3 basis points at 4.903%, easing away from the three week low of 4.871% it touched on Tuesday. The drop in yields put pressure on a buoyant dollar. Against a basket of currencies, the dollar inched up 0.029% to 103.58 after slipping nearly 0.4% on Tuesday.

The yen weakened 0.15% to 146.09 per dollar and remained at levels that led to intervention in the currency market last year by Japanese authorities. The Australian dollar fell 0.32% to $0.646 after data showed Australian consumer price inflation slowed to a 17-month low in July, signalling that interest rates might not have to rise again. U.S. crude rose 0.32% to $81.42 per barrel and Brent was at $85.69, up 0.23%. Both benchmarks rallied more than a dollar a barrel on Tuesday on a soft dollar.

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