The domestic currency has remained under pressure as US dollar strength persists as it ended 2024 at R18.85/$1, down by 3% for the year. Picture Henk Kruger/Independent Newspapers
The rand plunged to its lowest in nine months on Friday, breaching the R19-mark to the US dollar as the greenback continued to strengthen on the back of strong US jobs growth.
The domestic currency has remained under pressure as US dollar strength persists as it ended 2024 at R18.85/$1, down by 3% for the year, hovering between R18.75 and R18.95/$1 in the first days of 2025.
The US dollar also made further gains at the start of 2025 due to continued positive sentiment towards the incoming Trump presidency while emerging market currencies generally have fallen further since the start of the year.
The rand weakened by 2.1% to R19.12 on Friday as the US labour market surprised with resilience in December, driving the unemployment rate down to 4.1%
The US economy added 256 000 jobs in December 2024, the most in nine months, following a downwardly revised 212 000 in November, beating market forecasts of 160 000 and signalling a strong and stable labor market.
Wichard Cilliers, director and head of market risk at TreasuryONE, said the data has led to a recalibration of rate-cut expectations, with traders now predicting a Federal Reserve cut only in October, significantly later than prior forecasts.
Cilliers said the stronger-than-expected US payroll data also drove a sharp rally in the US dollar, causing ripple effects in emerging markets.
“The rand plunged to a nine-month low, breaching R19.00 to the dollar for the first time since June and trading at R19.12. The currency's drop marked its worst performance among major currencies for the week. Persistent fears of higher US interest rates, combined with local economic pressures, have contributed to a fourth consecutive weekly decline for the rand, down 2.1% this week alone,” Cilliers said.
“As markets digest the implications of the US jobs report, the market is pricing a reduced probability of a rate cut at the South African Reserve Bank's January meeting, reflecting uncertainty in a volatile global and local economic landscape. Traders and investors will be watching closely for further signals of momentum shifts in the coming days.”
The US Federal Reserve (Fed) has hinted at a cautionary approach in cutting interest rates further.
Nedbank economist Isaac Matshego said that minutes of the US Federal Reserve's December meeting hinted that members of the rate-setting Federal Open Market Committee (FOMC) will be adopting a cautionary stance in the upcoming meetings.
In December, the FOMC reduced the Fed's target for the federal funds rate to 4.25%-4.5% from 4.5%-4.75%, bringing total cuts to 100 basis points since easing started in September 2024.
“In its December projections, the Fed's forward guidance pointed at two interest rate cuts in 2025, down from four at the time of the September meeting. Markets are now pricing in a cut in July 2025,” Matshego said.
“The FOMC’s median GDP growth forecasts rose to 2.5% in 2024 (2% in September) and 2.1% in 2025 (2% in September). PCE inflation projections have been adjusted higher for 2024 (2.4% vs 2.3%), 2025 (2.5% vs 2.1%), and 2026 (2.1% vs 2%).”
BUSINESS REPORT