Rand extends recovery as dollar falters on Donald Trump’s comments

The dollar has grown stronger on the back Trump's criticism of his own Reserve Bank
The dollar has grown stronger on the back Trump's criticism of his own Reserve Bank
Image: FILE

The rand gained further ground on Wednesday afternoon‚ helping to alleviate concerns of another potential increase in fuel prices early in September.

A series of fuel-price increases in 2018 has led to record highs‚ which are contributing greatly to inflation.

The consumer price index (CPI) rose to its highest level in nearly a year in July — 5.1%‚ up from 4.6% in June — into the upper end of the South African Reserve Bank’s 3% to 6% target range.

Though still much weaker in the month to date‚ the rand has pulled back significantly from its recent worst level of more than R15 to the dollar.

Investec economist Annabel Bishop said in a note that the Bank could strike a more hawkish tone during its scheduled meeting in September‚ meaning that it could flag potential increases in rates in future meetings‚ given the volatility in the rand.

The rand’s recovery on Wednesday came courtesy of a weaker dollar‚ after US President Donald Trump took a swipe at the US Federal Reserve for its intention to raise borrowing costs further.

The Fed is among a handful of central banks in developed economies that has been on a rate-hiking cycle since late 2015‚ though the pace of the increases has been moderate.

Higher US rates have tended to boost the value of the dollar at the expense of the rand and other high-yielding currencies‚ which benefited from the ultralow interest-rate environment following the 2008-2009 global financial crisis.

"Trump has stressed his belief that the Fed should be helping his cause not hindering it‚ taking aim at the pace at which it is raising interest rates‚ which threatens to slow the potential growth of the economy and further strengthen the dollar‚" Oanda senior market analyst Craig Erlam said.

"While I don’t expect Trump’s comments to influence policy makers — and they shouldn’t — it’s clear that they now have a target on their back and will be publicly attacked should the economy not reach the heights that Trump has promised."

At 3.20pm‚ the rand was at R14.3355 to the dollar‚ from R14.3921. It was at R16.6418 to the euro from R16.6520 and at R18.5298 to the pound from R18.5757.

The euro was at $1.1608 from $1.571.

The benchmark R186 government bond was last bid at 8.95% from 8.99% previously.