Rand gains on Tuesday but eyes on US Fed interest rate decision

South Africa’s rand regained some strength against the dollar on Tuesday, though the unit hovered near its weakest levels in nearly four months amid an elevated greenback and an imminent interest rate hike by the U.S. Federal Reserve.

At 1600 GMT, the rand ZAR=D4 traded at 15.8100 against the dollar, up 1.74% from its close on Monday. The rand had hit 16.1950 on Monday, its weakest since Dec. 15.

The U.S. central bank’s Federal Open Market Committee will begin its meeting on interest rates later in the day and is expected to hike borrowing costs by half-a-percentage point when it announces its decision on Wednesday.

“Monetary tightening decisions are currently a balancing act between combating historically high inflation and not triggering an economic recession,” said Bianca Botes, director at Citadel Global.

While the rand managed to offset some of its Monday losses in the day, analysts expect the currency to stay under pressure in anticipation of Fed’s move.

“Markets are already pricing in a 50bp rate hike, but the focus will be on the outlook going forward…The currency is likely to remain under some pressure going into tomorrow,” said Andre Cilliers, Currency Strategist at TreasuryONE.

In fixed income, the yield on the benchmark 2030 government bond ZAR2030= was down 4 basis points to 9.915%.

Shares on the Johannesburg Stock Exchange (JSE) fell as investors stayed cautious ahead of the Fed decision.

The benchmark all-share index ended down 1.52% at 71,339 points and the top 40 companies index was down 1.64% at 64,401 points.

All major indices, including banks, industrials and mining ended the day down.