U.S Federal Reserve (FED) interest rate decision
The U.S. Federal Reserve's Federal Open Market Committee (FOMC) will announce whether the interest rates in the U.S. will increase or remain unchanged tonight at 21:00 SAST.
Market Consensus:
The market consensus is that the FOMC will keep interest rates steady at 2.25% and leave the policy statement largely unchanged. However, the meeting minutes of this sitting will be released on the 29th of November which will be looked at closely if there is any indication of a December rate hike.
An additional increase of 0.25% in U.S. interest rates is expected before the end of the year if market conditions allow for it.
The FOMC Statement and Press Conference:
The Federal Open Market Committee (FOMC) statement communicates its monetary policy to investors and market participants. It also contains the outcome on the vote on interest rates and will be released at 21:00 SAST.
Following the statement, no press conference is scheduled for the FED Chair Jerome Powell. The FOMC statement will be looked at closely for clues on future rate decisions.
Impact on South Africa:
The decision will be watched closely by market participants as an increase in the U.S. interest rate might have a positive effect on the Dollar (USD). Dollar (USD) strength will put pressure on Emerging Market Currencies so we can expect the Rand (ZAR) to depreciate if the Dollar (USD) remains in favour.
As a result, we can expect an overall price increase in Retail goods and services (Financial) filtering through to the S.A consumer. It is anticipated that the domestic consumer will remain under immense pressure in the medium term.
USD/ZAR outlook
The Rand (ZAR) has been gaining strength over the last couple of months from the lows we saw in early September. The price action is currently finding support around the R13.93 price level just below R14.00/ Dollar. We might see the Rand move lower still as the Dollar is currently under pressure as we await the FOMC decision later today.
Source – Bloomberg
Trading Strategies:
An increase in U.S interest rates will see the Dollar (USD) strengthen, so look at the following:
South African instruments:
- Bank stocks.
- Retail stocks.
- Rand hedged stocks.
- Alsi (Index).
- USD/ZAR (Forex pair).
Major Forex pairs:
- EUR/USD.
- GBP/USD.
- USD/JPY.
- USD/MXN.
The inverse is applicable where there is an increase in interest rates then that will have a negative effect on equities so look at the following:
Major Indices:
- S&P 500.
- Wall Street 30.
- Nasdaq 100.
- Russell 2000.
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