While the rand has recovered somewhat over the past week, it is still trading at near-record lows. File picture: Independent Media
The rand rose to its highest level against the dollar in more than a month yesterday, boosted by the lowest inflation expectations in two years in the US, and encouraging domestic economic data amid easing concerns over load shedding.
The domestic currency gained 0.2% to R18.55 against the US dollar by 5pm, its highest since May 8, from R19.50/$1 a week ago, as international and local factors buoyed sentiment in favour of the rand.
While the rand has recovered somewhat over the past week, it is still trading at near-record lows.
Investors in the US are hopeful inflationary pressures will show further signs of easing, supporting the case for a pause in the Fed’s interest rate hikes this week
The US inflation rate, which will be announced on Wednesday, is forecast to fall 4.1% in May, the lowest since March 2021, from 4.9% in April, while the core gauge may decelerate to 5.2% from 5.5%.
As a result, most market participants expect the US Federal Reserve to leave interest rates unchanged at the current levels, but there is a slight chance of a rate hike depending on the inflation reading.
The latest local growth figures show South Africa’s economy has narrowly avoided a technical recession in the first quarter, and SA Reserve Bank data indicated the current account deficit narrowed more than expected in the same period.
Meanwhile, June has surprised, with load shedding being suspended for more than half the day and kept to lower stages at night, against expectations it could get worse.
The higher availability of electricity has been attributed to improved maintenance at Eskom's power plants and increased diesel supply at the open-cycle gas turbines that are used for emergency supply during periods of high demand, as well as higher tariffs that have cut demand.
Investec chief economist Annabel Bishop said the rand continued to run stronger as its fundamentals improved.
Bishop said the government had been proactive in working to resolve the electricity crisis, while big business and the presidency have established a partnership initiative to remove obstacles to inclusive economic growth and job creation.
She said also cheering the markets was the likely pause, if not end, to the interest rate hike cycle in the US this week, with the market not pricing in a full rate hike of 25 basis points in any of the upcoming three Fed meetings.
“With a two to three quarter lag between a change in US interest rates and the impact on the economy, the US is largely expected to pause its rate hike cycle, bolstering the rand, which was suffering from ongoing erosion of the interest rate differential,” Bishop said
“International events in financial markets, particularly in the US, are a key driver of the domestic currency. However, domestic events have had a key influence on the rand over the last few weeks, and will remain key for the domestic currency.”
Meanwhile, stocks on the JSE eased by 0.9% to 76 282 index points, with most losses coming from miners, banks and retail stocks.
BUSINESS REPORT