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Rand reels as hawkish Fed and trade war add to investor worries

The ANC’s land reform plans, layoffs in the platinum sector and post-election strife in Zimbabwe, also weighed in the rand.

South Africa’s rand headed for a two-week low against the dollar as a hawkish Federal Reserve and escalating trade tensions weighed on emerging-market currencies.

A day after the Fed’s upbeat assessment of the US economy drove the dollar and Treasury yields higher at the expense of developing-nation asset prices, China further rattled investors by vowing to retaliate against President Donald Trump’s latest trade salvo. A cocktail of negative local news, including the ruling party’s land reform plans, layoffs in the platinum sector and post-election strife in neighbouring Zimbabwe, also weighed in the rand.

The currency fell 2%, the most in emerging markets, to 13.4945 per US dollar by 11:58 am in Johannesburg, its weakest level since July 19 on a closing basis. Yields on benchmark government bonds due December 2026 climbed 13 basis points to 8.74%.

“With the more hawkish tilt in the FOMC’s tone currently pricing into the market, the rand on a near-term basis could move weaker,” Annabel Bishop, the chief economist at Investec Bank wrote in a client note. Investec sees a risk of depreciation to 14 per US dollar in the remainder of the third quarter.

© 2018 Bloomberg

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