(Reuters) -The South African rand slumped on Friday as the dollar surged after hot U.S. May inflation data raised the likelihood of a prolonged aggressive interest rate hikes by the Federal Reserve to fight inflation.
U.S. consumer prices accelerated in May as gasoline prices hit a record high and the cost of food soared, leading to the largest annual increase in nearly 40-1/2 years. The consumer price index increased 1.0% in May after gaining 0.3% in April.
At 1625 GMT, the rand traded at 15.8575 against the dollar, down 2.19% from its previous close.
The dollar index was up 0.88% at 104.21.
A stronger dollar can make high-yielding but riskier assets such as the rand relatively unattractive to investors. Higher rates in the United States also tend to drain capital from emerging markets like South Africa.
“Sanctions on Russia, adverse weather conditions, the disruption to transport routes in the Black Sea from the Russian/Ukraine war and other issues facing Ukrainian grain exports will all support grain and cooking oils prices, and risk driving price inflation higher,” Investec economist Annabel Bishop said in a research note.
Stocks in the Johannesburg Stock Exchange (JSE) mirrored global markets in its melt down over worries of higher inflation in the U.S. following the latest inflation data.
However, mining companies performed well, with the mining index up 1.87%, after gold prices bounced back. Harmony Gold Mining Company Ltd closed 6.72% higher, while Gold Fields Ltd ended up 9.49%.
Gold Fields’ gains came on the heels of a top investor calling its Yamana Gold Inc buyout a “serious error.”
Overall on the JSE, the All-Share index fell 1.61% to 67,804 points while the Top-40 index closed 1.73% lower at 61,348 points.
The government’s benchmark 2030 bond fell, with the yield rising 22.5 basis points to 10.205%.
(Reporting by Anait Miridzhanian in Gdansk and Bhargav Acharya in Bengaluru; Editing by Toby Chopra and Angus MacSwan)
