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Rand slightly firmer, bonds gain

On interest rate hike expectations.

JOHANNESBURG – South Africa’s rand recouped some more of this week’s steep losses on Thursday, firming more than 1 percent against the dollar, while government bonds gained on renewed expectations of an interest rate hike.

The rand rose to 12.1485 to the dollar earlier, and was trading at 12.1616 by 11:56, up 0.70% on the day. Since Friday, the rand has dropped to its weakest levels since 2002 after a sell-off of emerging market currencies.

Riskier assets came under pressure after robust U.S. employment data increased expectations that the Federal Reserve could raise rates in the middle of this year.

“Given the move in currency markets since last Friday, we are due another day of consolidation as the market tries to find its feet,” Warrick Butler of Standard Bank said in a note.

Government bonds tracked the rand firmer, with traders also pricing in the probability of an interest rate hike at the next monetary policy (MPC) meeting of the South African Reserve Bank on March 26.

The yield for the 2026 benchmark was down 7.5 basis points to 7.825%.

“Elevated rates in the FRA (forward rate agreement) market disclose a 50 percent probability of an interest rate hike at the next MPC meeting being priced in despite the reprieve in the rand,” Alexa Nicolau, a fixed income specialist at Rand Merchant Bank, said in a note.

“With 125 basis points of hikes anticipated over the next 24 months, the market has turned a lot more hawkish than at the start of the year.”

The central bank kept its benchmark lending rate unchanged at 5.75% at its last policy meeting in January, after adding 75 basis points in 2014. The bank will hold its next meeting later this month.

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