Rand pauses Fed-fuelled rally ahead of GDP release

The rand inched weaker in early trade on Tuesday, pausing a rally sparked by signs of lower interest rates in the United States ahead of a local statistics release likely to show the economy contracted in the first quarter.

At 0830 GMT the rand was 0.09% weaker at 14.44 per dollar, still near its firmest in seven days after tumbling to a 5-month trough last week as global risk aversion and uncertainty over President Cyril Ramaphosa’s cabinet appointments cooled demand.

The rand has been helped back towards levels around 14.40, rallying more than 2% since Friday, with sentiment soothed by Ramaphosa’s decision to ditch a number of ministers in cabinet during his predecessor Jacob Zuma’s scandal-prone decade in office.

Comments on Monday by a Federal Reserve policy committee member that an interest rate cut “may be warranted soon” further boosted the rand along with other risk assets as the greenback suffered.

The first-quarter gross domestic product release by Statistics South Africa at 0930 GMT may dim the currency’s momentum, with some analysts seeing a larger than expected contraction that could reignite broader worries about the economy.

“The contraction is mainly attributed to poor mining and manufacturing output as a result of load-shedding, with mining further weighed down by the strike at Sibanye-Stillwater,” Rand Merchant Bank analyst Mpho Tsebe said.

“In addition, retail sales also remained weak as consumers came under pressure due to the rising tax burden and fuel costs.”

On Monday the International Monetary Fund also warned about risks to growth, citing troubled state power utility Eskom as the main threat to the reforms promised by Ramaphosa.

Bonds were firmer, with the yield on the benchmark 10-year issue down 2 basis points at 8.4%.