The South African rand barely moved on Tuesday, holding at 16.7475 against the dollar as a stronger dollar and a 1.1% drop in gold weighed on it. Traders now price a nearly 40% chance that the Federal Reserve raises rates on Wednesday, up from about 20% a week ago. Last week’s decision by South Africa’s central bank to leave its lending rate alone is still part of the pressure, one strategist says.
The South African rand showed little movement on Tuesday, trading at 16.7475 against the dollar at 1412 GMT, nearly unchanged from its previous close. A stronger dollar and declining gold prices held the currency in place before the U.S. Federal Reserve’s policy decision.
Gold, a major South African export, dropped 1.1%. Meanwhile, the dollar held steady near a four-week high. Traders weighed the possibility of a Fed interest rate increase this week.
Markets are pricing in a nearly 40% chance of a 25-basis-point increase by the Fed on Wednesday, up from about 20% a week ago, according to LSEG data. Traders see almost a 95% probability of a hike by September.
However, according to TreasuryONE currency strategist Andre Cilliers: “Pressure on the rand is still coming from market disappointment” over the lack of action on rates by the SARB, a lower gold price and a stronger dollar.
South Africa’s central bank kept its main lending rate unchanged last week, a decision that surprised investors and economists. The bank said its policy was restrictive enough to return inflation to its target within two years.
Data released on Tuesday showed South Africa’s composite leading business cycle indicator fell 0.3% month-on-month in May.
Source: Investing.com
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