South African rand firms on strong local data, weak dollar

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South African rand firms on strong local data, weak dollar

6:01 CAT | 11 Jul 2023

File photo: Reuters

South Africa’s rand strengthened on Tuesday following improved local manufacturing output and a weak dollar spurred by expectations of an end to rate hikes in the U.S.

The rand ZAR=D3 traded at 18.53 against the dollar at 1443 GMT, up 1.3% on its previous close.

Data from Statistics South Africa showed the country’s manufacturing output rose by 2.5% year-on-year in May after advancing by a revised 3.6% in April.

The rise in output was just the second time this year, following six consecutive months of decline.

Thanda Sithole, senior economist at local lender FNB, said that despite the data, the sector’s outlook remains uncertain.

“The manufacturing sector remains fragile and clouded,” said Sithole, adding that power cuts, infrastructure failure and moderating demand could weigh down the industry.

In addition, rand strength was driven by a fall in inflation expectations in the United States despite the Federal Reserve saying it could hike rates further.

The currency markets are “disregarding the hawkish bias favoured by Fed officials”, said Warren Venketas, an analyst at Daily FX, pushing the greenback down.

Shares on the Johannesburg Stock Exchange (JSE) firmed, led by industrials such as Shoprite SHPJ.J and precious metals miners including Impala Platinum IMPJ.J and Anglo American Platinum AMSJ.J.

The benchmark all-share index .JALSH ended up 0.58% to 74,775 points while the blue-chip index of top 40 companies .JTOPI ended the day up 0.51% to 69,453 points.

The main indexes have lost over 7% since reaching all-time highs earlier this year, driven primarily by a sluggish economy, inflationary pressures and rampant power cuts.

Yield on South Africa’s benchmark 2030 government bond ZAR2030=was marginally down to 10.725% on strong local data.

Source: Reuters