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South African rand heads for almost 4% weekly loss on hawkish Fed

06/18/2021 | 12:17pm EDT
New South African bank notes featuring an image of former South African President Nelson Mandela are displayed at an office in Johannesburg

JOHANNESBURG (Reuters) -South Africa's rand fell steeply on Friday, heading for a weekly loss of almost 4% after the U.S. Federal Reserve's hawkish message on monetary policy dented investor appetite for riskier assets.

At 1603 GMT, the rand traded at 14.2950 against the dollar, roughly 1.2% weaker than its previous close and down 3.7% on its closing level from the end of last week.

The Fed's sudden turn on Wednesday revitalised the dollar and U.S. Treasury yields, diminishing the attraction of emerging market currencies for carry trade - whereby investors borrow cheaply in one currency and buy assets in another where returns are higher.

Along with favourable commodity prices, carry trade has helped make the rand one of the best-performing emerging market currencies this year, despite the weak state of the local economy.

Kevin Lings, chief economist at South African asset manager Stanlib, said in a research note that moderating commodity prices were another factor that could be contributing to rand weakness, adding it was still too early to gauge an underlying trend.

In fixed income, the yield on the benchmark 2030 government bond rose 2 basis points to 8.96%, reflecting slightly weaker prices.

Johannesburg-listed stocks dropped for the third straight session.

The All-share index lost 1.43% to end the week at 65,635 points and the blue-chip Top-40 index slid 1.48% to 59,504 points.

"We're in a difficult period. And I think from now on, we're going to have a lot of volatility which is going to be centred around anything that comes out of the Fed," said local analyst David Shapiro.

(Reporting by Alexander Winning and Promit Mukherjee; editing by Jonathan Oatis)


© Reuters 2021
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