Johannesburg - The rand yesterday fell to its weakest since December 2001 on speculation that the US Federal Reserve will raise interest rates next month, dimming the appeal of emerging-market assets.
The rand dropped with other emerging markets currencies after Fed Bank of Atlanta president Dennis Lockhart said in an interview with the Wall Street Journal that it would take a significant deterioration in US economic data to convince him to put off increasing rates in September.
The rand declined as much as 0.6 percent to R12.8066 a dollar, before paring losses to trade at R12.7998 by 5pm.
The rand was likely to remain under pressure ahead of the US non-farm payrolls data due for release tomorrow, Standard Bank said.
Rand Merchant Bank said: “Our base case is still for a September hike by the Fed and the July and August non-farm payrolls data will be important, as rising employment will very likely trump low inflation to prompt the Fed to move.”
Markets now had “little doubt about a US hike,” Nedbank head of strategist research Mohammed Nalla said in a note to clients.
“This combined with a plethora of negative headlines regarding the local economy are unlikely to provide any comfort for the rand.”
He said the prime mandate of the Fed was full employment and it would therefore focus on the labour data.
More momentum will build up before September and the currencies of emerging markets will come under pressure.
“The rand’s sensitivity to Fed stimulus has ensured we have remained bears,” said Christopher Shiells, a senior emerging-markets analyst at Informa Global Markets.
The rand would weaken to 13 to the dollar once it broke through 12.866, he said.
BUSINESS REPORT