US rate hike worry unsettles rand

SOUTH Africa’s markets settled narrowly mixed after a volatile week during which the rand traded in a 34c range against the dollar.

The local currency rallied to R13.21/$ before backtracking to R13.54/$ on Friday as traders second-guessed the timing of the next US interest rate hike.

The minutes of the US Federal Reserve’s July meeting released this week suggest a split among policymakers about whether they should pull the trigger on rates this year.

Although the US jobs market has picked up steam in recent months, headline inflation still runs below the 2% target the Fed considers when raising rates.

Analysts have warned that a US rate hike poses a threat to the rand, which has rallied 10% against the greenback since the Brexit vote in June.

The ultra-low interest rate environment in most countries in the developed world has spurred funds into emerging markets such as South Africa because they offer relatively higher returns.

The country has attracted a net R57.69-billion in bond inflows so far this year, boosting the rand in the process.

“We are cognisant of the fact that these flows can reverse should the environment deteriorate, but for now the offshore account inflows suggest these investors remain positive,” said Ashley Dickinson, head of fixed-income dealing at Sasfin Securities.

Local inflation figures come under the spotlight on Wednesday and will likely shape the near-term path for the rand.

The consumer price index is anticipated to have moderated to an annual rate of 6.1% in July, down from 6.3% in June, according to a median consensus forecast from a BDlive survey of 12 economists.

The JSE All Share ended the week broadly flat, with the banks snapping a five-week winning run that has delivered a 16% gain.

Industrial stocks, which have been buckling under the weight of the strong rand in recent weeks, managed to end the week higher.