Cape Town – In late afternoon trade on Thursday the rand breached R13.60/$.
It was trading at R13.61 by early evening – down by 1.67% on the previous day’s trade.
This was after the rand hit a three-week low against the US dollar earlier in the day after the Federal Reserve kept interest rates on hold and downplayed weak first-quarter GDP growth as temporary.
The hawkish Fed sent the greenback to a six-week high, pushing emerging market currencies lower.
“As expected the US Fed kept rates on hold, but the hawkish statement that followed has led quite a few market commentators to pencil in an interest rate hike for June.
“This ‘certainty’ of a hike has seen the US dollar gain some ground against all the major currencies, including the rand,” said Andre Botha, dealer at TreasuryOne in a client note on Thursday.
In its accompanying hawkish statement, the Fed emphasised continued strength in the labour market and household spending, said RMB analyst Isaah Mhlanga.
“The probability of a June hike, as shown by Fed funds futures, jumped from 67% to 76% after the statement. US economic data and how tax cut negotiations evolve will become crucial from now until the June meeting,” he said.
Mhlanga said a June hike will be almost a done deal if data remains steady or improves.
By 11:23 the rand was trading at R13.50/$, after climbing to R13.54 from an overnight close of R13.43 against the greenback.
Botha said the market seems to have finally got some direction after the FOMC meeting. “Locally the rand is looking to political issues rather than economic issues for direction,” he said.
Mhlanga agreed, saying that the unit looks set to weaken further even as Finance Minister Malusi Gigaba emphasised his predecessor’s policies on Wednesday. “This shows that markets are looking for action rather than lip service as far as local economic policy is concerned,” he said.