Rand halts losing streak as fear about climbing interest rate ebbs

The rand pulled back from the psychologically important R14 to the dollar level, lifted by a return of risk-on global trade, and some good news locally.

Inflation rose 4.4% in May on an annualised basis, Statistics SA said earlier, with lower food prices helping to ensure the print missed a consensus forecast of 4.6% for the month.

This has helped moderate fears that the Reserve Bank will be forced to raise interest rates in 2018 in order to protect the rand and ward off inflationary pressure, while a return of investor appetite for risk assets also assisted the currency.

Global markets are recovering from three days of sharp sell-offs, but analysts warn that risk factors remain.

Many of SA’s emerging-market peers had recently increased interest rates — although for country-specific reasons — leaving the local currency vulnerable, said Rand Merchant Bank analyst Isaah Mhlanga. The rand was the second-worst performing currency since Monday, after the Turkish lira, “but having to compare with Turkey shows just how vulnerable the local unit really is”, he said.

Turkey will hold a presidential election at the weekend, the result of which analysts maintain could produce negative sentiment towards emerging markets in general.

Some focus is also on the pound, where UK Prime Minister Theresa May is facing a decisive vote by legislators over whether her government could opt unilaterally for a hard Brexit, should talks with the EU fail.

At 3pm, the rand was at R13.5847 to the dollar from R13.7501, R15.7505 to the euro from R15.9380, and R17.9222 to the pound from R18.1127. The euro was at $1.1592 from $1.1589.

Local bonds were also firmer, with the yield on the benchmark R186 last seen at 9.01% from 9.16%, while the R207 was at 7.66% from 7.805%.