JOHANNESBURG (Reuters) -South Africa’s rand weakened on Friday, as investors assessed the impact of the start of the U.S. Federal Reserve’s rate tightening cycle this week and as commodity prices such as gold fell.
At 1456 GMT, the rand traded at 14.9773 against the dollar, 0.39% weaker than its previous close.
The Federal Reserve on Wednesday raised interest rates for the first time since 2018, presenting an aggressive plan to hike borrowing costs in a pivot from fighting the pandemic to tackling economic risks posed by inflation and the Ukraine war.
Riskier currencies, such as the rand, thrive on U.S. interest rates remaining low because they benefit from the interest rate differential that increases their appeal for carry trade.
“The rhetoric from (Fed) Chair Powell and his reference to the labour market being tight to an unhealthy level further support the view that the rate of increases this year will be substantial,” Craig Erlam, Senior Market Analyst at OANDA said in a note.
“Now it’s just a question of whether the Fed’s actions, combined with moves in commodity markets, will become recessionary, something the markets may be starting to price in.”
As South Africa is a resource-led country, recent rises in commodity prices, especially gold, platinum and coal, had strengthened the currency, making it one of the best-performing among emerging markets this year.
But on Friday gold prices fell and were on track for their worst week since late November, as safe-haven demand fuelled by Russia’s invasion of Ukraine subsided. [GOL/]
On the stock market, the Johannesburg All-Share index closed up almost 1% at 74,848 points, while the blue-chip Top 40 index rose 1.04% to 68,275 points.
In fixed income, the yield on the benchmark 2030 government bond was up 7 basis points to 9.655%, reflecting weaker prices.
(Reporting by Nqobile Dludla; editing by Barbara Lewis)
