Trump, Trump and a little bit of South Africa

What a November we had, with the rand staging one of its best months and closing below the R14.00 level.

To be honest, this looked like quite a far-fetched possibility at one stage during the month. It seems that the tide has changed a little, even though it might be short lived since the US dollar bulls are not so sure of their case anymore.

The main reason for this change in sentiment is the sudden cautionary theme that emanated from the US Fed. The Fed stated that it foresees 2019 to be a more difficult year and the expected 3 to 4 rate hikes could be reduced to 1 or 2 next year.

This sudden change of heart was brought about by the recent stock market performance, housing sales, and price stand-still in the US and the uncertainty about China and the current trade tensions. The words US recession and 2019 have been used together in the past couple of weeks and the market has started to have its own doubts about the Fed in 2019.

This week we have Jerome Powell, chairman of the Fed, testifying before Congress. The market will pay close attention to his testimony to gauge the Fed's mood heading into 2019 and the likelihood that the interest rates hikes will be less frequent than we all anticipated a couple of months ago.

As if Powell did not have enough on his plate, he's drawing the ire of President Donald Trump who has lambasted his decision to hike rates in public.

This tug-o-war can continue for a little while longer and create unwanted uncertainty in the market that might result in a stronger US dollar - another thing Trump does not want. It seems that the Trump-Powell tango had another change of tempo as Trump called a ceasefire on the trade war, which will aid the US economy and help Powell in his interest rate cause.

But on the other hand, Powell has started to become cautious, which is exactly what Trump wanted. This feels a lot like a he-who-flinches-first situation which is not conducive for confidence in the market.

So, what could this mean for the rand? 

In the short term the little reprieve in the US interest rate, plus the trade truce that was agreed upon by the USA and China has helped the rand, but there are no local drivers of the rand. The result is that if the sentiment plug is pulled, the rand could be on the back foot should America or China go back on their so-called truce.

This week, however, we have two local data sets that could create some momentum for the rand. The data sets of interest are our GDP number and the Current Account Balance.

We saw the last reaction in the rand when the GDP printed poorly, and although the market is expecting a better number than last, a failure in print could see the rand on the back foot.

The weekend's news of load shedding will also impact the rand. Should load shedding continue for an extended period it will have an impact on growth and perk the interest of rating agencies again, and uncertainty will enter the market.

To catch up on today’s market commentary, have a look at the TreasuryONE blog which is updated daily.