Rand brushes against four-month low

The rand weakened along with its emerging-market peers on Friday as investors considered the prospect of delayed interest rate cuts by the Federal Reserve.

The local currency fell more than 1% in intraday trade for the second session running, touching its worst level in more than four months, with the “weakness largely attributed to a strong dollar rather than any local factors”, said RMB head of forex execution Matete Thulare.

Minutes from the most recent federal open market committee (FOMC) meeting released on Wednesday showed that US central bank officials remained cautious about lowering interest rates too quickly and emphasised the importance of carefully assessing incoming data in judging whether inflation was moving down sustainably to the 2% target.

FOMC member Christopher Waller said on Thursday that cutting rates too soon could “squander inflation progress and risks considerable harm to the economy”.

Investec chief economist Annabel Bishop said: “Markets are now factoring in a delayed start to US interest rate cuts, which has supported the dollar, along with the robustness of the US economy in many areas, causing the rand to weaken.

“The delay in the US rate cut cycle for the first half of 2024, as markets increasingly push it forward into the second half of the year, has weakened emerging-market currencies, which tend to gain in US interest rate cut cycles as hard currency returns are eroded, and vice versa.”

At 6pm, the rand had weakened 0.7% to R19.2964/$ — having touched an intraday worst of R19.3911/$ — the weakest level since October 9. It had softened 0.67% to R20.8771/€ and 0.94% to R24.4495/£. The euro was little changed at $1.0821.

“The rand remains far removed from its fair value [purchasing power parity] of about R15/$, and the US interest rate cut cycle is expected to see it fall back towards R17/$, though this is being increasingly delayed,” said Bishop.

The JSE closed slightly firmer amid mixed global markets as a rally driven by strong earnings results at Nvidia ran out of steam. Nvidia’s shares added about $277bn on Thursday, surpassing the $197bn gain made by Facebook parent Meta at the start of February, Bloomberg reported.

“Despite a hawkish Fed stance, stock markets seemed unfazed by the delay in rate cuts, focusing instead on mega-cap tech stocks such as Nvidia,” said Citadel Global director Bianca Botes.

The JSE closed 0.14% firmer at 74,213 points — with the major indices mixed while the top 40 added 0.2%.