Rand recovers after soft CPI data, EM rebound

South Africa‘s rand rallied hard on Wednesday as a slightly better-than-expected inflation print and a broad recovery among emerging market currencies spurred some profit-taking.

At 13:00 GMT the rand was 1.15% firmer at 13.5850 per dollar, pulling away from the crucial 14.00 mark that traders said would trigger deeper losses following a month that has seen the unit take an 8% hit.

“We were expecting this kind of correction. It’s a technical pullback and we’ve also seen other emerging market currencies stabilise,” said currency strategist at Nedbank Mehul Daya.

“We don’t however see this as a trend change. There’s just a little bit more calm out there and the softer inflation numbers have contributed a little bit to that,” Daya said.

Headline consumer inflation slowed to 4.4% year-on-year in May from 4.5% in April, while on a month-on-month basis prices slowed to 0.2% from 0.8%.

The greenback was down 0.2%, allowing emerging currencies that have been battered by worries about a growing US-China trade spat some breathing space, with investors short the rand pocketing profits after the fall to near 7-month trough.

Traders expect the rand to settle near the 13.50 technical support toward the end of the week, with current account data due on Thursday and the unfolding trade war the main risk events.

The firmer rand aided a recovery in fixed assets and equities.

The yield on the benchmark government bond due in 2026 was down 17 basis to 9%.

On the bourse the Johannesburg Stock Exchange’s Top-40 index was up 1.3% to 50 656 points, while the broader All-Share index rose 1.2% to 56 920 points.

Financials led the recovery in equities, with the banking index up 3.45% following a torrid week.

First Rand and Rand Merchant Bank were both up more than 4%, to R59.52 and R72.54 respectively.