JOHANNESBURG – South Africa’s rand retreated on Monday from its firmest levels in three weeks following the decision to keep U.S. interest rates steady, as the market set its sights on the likelihood of a Federal Reserve rate hike this year.
The rand snapped Friday’s gains as bulls ran out of steam after a top Fed policymaker said a rate hike this year is still likely. A sell-off of Asian equities also saw the rand beginning the week on the back foot.
Government bonds mirrored the rand, with the paper due in 2026 adding 3.5 basis points to 8.370 percent.
South Africa’s blue-chip Top-40 index was down 0.36% by 09:37.
The rand was 0.34% weaker at 13.3630 to the dollar (at 09:52) compared with Friday’s New York close of 13.3150.
“Last week’s ZAR short covering is overdone, given that the lingering threat of Fed policy rate normalization and persistently sluggish demand indicators out of China have not disappeared,” saidPeter Worthington an economist at Barclays.
Worthington added that “the balance of risks favours a move back up to the 13.50/USD area by month-end.”
Dollar strength also affected the rand as investors adjusted their positions after the Federal Reserve last week delayed a long-anticipated hike in U.S. interest rates.
On the local front, the Monetary Policy Committee (MPC) will announce its decision on rates on Wednesday. The MPC lifted interest rates by 25 basis points to 6.00 percent in a borderline call in August.