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US Dollar South African Rand (USD/ZAR) Sinks as Fed Rate Cut Odds Rise

Published: 10 Mar at 3 PM Tags: Dollar Exchange Rate, Currency Exchange, Forex, Rand Exchange Rate, Exchange Rates, Economy,

The US Dollar South African Rand (USD/ZAR) exchange rate fell by -0.7% today, with the pairing currently trading around R15.920 as the ‘Greenback’ continues to suffer from falling US bond yields and fears of another US Federal Reserve rate cut.

Michael Gapen, the Head of US Economics Research at Barclays, commented that the ‘likelihood of getting a zero [per cent interest rate cut from the Fed] is higher than the risk of a recession’. Mr Gapen also added that there is ‘probably a low risk of a recession, a 1 in 4 maybe at the most’.

Today saw the release of the NFIB Research Foundation’s US business optimism index for February climb from 104.3 to 104.5.

NFIB Chief Economist William Dunkelberg commented:

‘February was another historically strong month for the small business economy, but it’s worth noting that nearly all of the survey’s responses were collected prior to the recent escalation of the coronavirus outbreak and the Federal Reserve rate cut. Business is good, but the coronavirus outbreak remains the big unknown.’

The US Dollar (USD) has remained subdued against some of its larger competitors, however, with Covid-19 threatening to derail America’s economy in the near-term.

The South African Rand (ZAR) has benefited from a return of risk-appetite after China’s coronavirus cases have shown signs of slowing down.

Efficient Group economist Dawie Roodt described the South African Rand as a ‘barometer for international fear and uncertainty’, but noted ZAR’s improvement in recent days.

Mr Roodt added:

‘I think most of the bad news is in the market already, but it is quite possible that the rand could lose more value over the next couple of days. My expectation is that we will see the rand consolidating and slightly improve over the coming months.’

Looking ahead, the USD/ZAR exchange rate is likely to face volatility with ‘Greenback’ traders becoming increasingly nervous over the prospect of a rate cut from the Federal Reserve.