Rand hits R19 to the dollar as interest rates drag

·19 Mar 2024

The rand weakened back to R19 to the dollar on Tuesday as the greenback gained ground ahead of the US Fed’s interest rate decision this week.

A cut in interest rates in the United States would typically soften the dollar, giving some ground to currencies like the rand. Last week, sentiment from the Fed pointed to interest rates in the world’s biggest economy peaking, with cuts on the horizon.

This boosted the rand, bringing it under R18.60 by mid-week – however, the reality that interest rate cuts are still far off quickly turned things around.

Recent data out of the US has pointed to stubbornly high inflation, tempering the market’s expectations of the pace and scale of the Fed’s cuts this year.

Analysts started 2024 under the impression that early rate cuts could be coming – but these views have now pushed back the earlier cuts to mid-year at best and after Q3 at worst.

For South Africa, this means ‘higher for longer’ interest rates will likely continue, with the South African Reserve Bank only expected to cut rates after the US Fed.

Like most emerging market currencies, the rand often takes its cues from global factors such as US monetary policy.

According to Investec chief economist, Annabel Bishop, cutting interest rates ahead of the US would see the rand weaken materially. SARB governor, Lesteja Kgayango, has also been firm that the monetary policy committee won’t cut rates until inflation is firmly under control.

Stats SA will publish the latest inflation figures for February 2024 on Wednesday. Inflation is expected to come in higher than January.

By 11h00 on Tuesday, the rand was trading at these levels against major currencies: