Johannesburg - The rand weakened slightly yesterday as the dollar gained on rising expectations of a US interest rate hike.
By 5pm the rand was more than 6 cents weaker against the dollar at R15.7714 from the same period yesterday.
The Federal Reserve would probably tighten policy a bit quicker next year, a top Fed official said yesterday, noting that the decision whether to hike in mid-June would hinge on economic data before then.
St Louis Fed president James Bullard said keeping US interest rates too low for too long could cause financial instability and that stronger market expectations for a rate rise were “probably good”.
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“The rand will become volatile leading into the (Fed) meeting in June, where expectations are increasingly towards Fed hiking rates,” Thabi Leoka, an economist at Argon Asset Management, said.
The rand gained earlier after South Africa’s top prosecutor denied involvement in a political plot to unseat Finance Minister Pravin Gordhan and said reports that his arrest was imminent for authorising a “rogue” investigative unit at the national tax agency were “unwarranted and speculative”.
“The matter is not on my desk,” Shaun Abrahams, the national director of the National Prosecuting Authority, said yesterday.
“It will only make its way to me after the investigation has been concluded and a recommendation thereon made to me. I implore you to respect the process.”
But it was unclear whether Gordhan would keep his job, according to Goolam Ballim, the chief economist at Standard Bank Group.
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“Were he to fall, we would likely see a rerun of the financial markets volatility of December,” Ballim said. “There is an inherent fluidity in South Africa’s political economy at this juncture. We’re a society and economy suspended, to some degree.”
The rand has declined 26 percent against the dollar since the start of last year, the most of 16 major currencies monitored by Bloomberg.
The rand was likely to end the year no stronger than R15.50 to the dollar, and would probably breach the R17 level briefly if South Africa’s credit rating was cut to junk, before making a recovery that could take weeks or months, Ballim said. A downgrade would probably push the economy into recession, he added.
REUTERS AND BLOOMBERG