South African rand catches breath after rally

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South African rand catches breath after rally

10:14 CAT | 14 Jul 2023

File photo: Reuters

The South African rand was slightly weaker in early trade on Friday, catching its breath after a rally that has seen it gain about 5% against the dollar this week.

The risk-sensitive rand has been a big beneficiary of cooling U.S. inflation, which has stoked speculation that the Federal Reserve could pause its interest rate hikes after this month and driven the dollar to its weakest since April 2022.

At 0625 GMT, the rand traded at 17.9550 against the dollar ZAR=D3, over 0.1% weaker than its closing level on Thursday.

The rand broke below 18 to the dollar for the first time in three months on Thursday.

“The weakness in the U.S. dollar has filtered through to local markets, with the rand notching up impressive gains,” Rand Merchant Bank analysts said in a research note.

“Should the momentum be maintained, rand bulls are now looking at the lows of March 2023, just above R17.60, as plausible in the coming sessions.”

When the South African economic data calendar is light, the rand often takes its cues from global drivers.

Next week market attention will turn to local inflation data ZACPIY=ECI, ZACPI=ECI on Wednesday and a central bank interest rate decision ZAREPO=ECI on Thursday.

A Reuters poll on Thursday predicted the South African Reserve Bank would leave rates on hold next week, but it was a close call with 12 of 21 economists forecasting no change and nine saying rates would be hiked by another 25 basis points to 8.50%.

Source: Reuters