By Tannur Anders
JOHANNESBURG (Reuters) -The South African rand slipped on Friday after U.S. data suggested a big Federal Reserve interest rate cut was likely not warranted, while the country’s benchmark government bond hit an almost three-year high on improved investor sentiment.
At 1517 GMT, the rand traded at 17.835 against the dollar, about 0.8% lower than its previous close.
U.S. employment increased less than expected in August, but a drop in the jobless rate to 4.2% suggested an orderly labour market slowdown continued and probably does not justify a big rate cut from the Fed this month.
Like other risk-sensitive currencies, the rand often takes cues from U.S. monetary policy and other global drivers in addition to domestic factors.
Meanwhile, South Africa’s benchmark 2030 government bond hit its strongest level in almost three years on Friday. The yield was last down 1.5 basis points at 8.99%.
“If the market believes inflation is under control or is expected to fall, investors will accept lower yields because the purchasing power of their returns is not being eroded as much by inflation,” said Wichard Cilliers, head of market risk at TreasuryONE.
Consumer inflation fell to 4.6% year-on-year in July, hitting a three-year low and nearing the midpoint of the South African central bank’s 3% to 6% target range.
An election in May saw the African National Congress lose its parliamentary majority for the first time in 30 years, forcing it to share power with smaller parties. This has also contributed to demand for local bonds, Cilliers said.
“There is an increased demand for South African bonds, driven by improved investor sentiment toward the country’s economic and fiscal prospects,” he added.
On the Johannesburg Stock Exchange, the blue-chip Top-40 index closed down around 1.1%.
(Reporting by Tannur Anders; Editing by Andrew Heavens, Bhargav Acharya, Jan Harvey and Andrea Ricci)
