Picture: REUTERS
Picture: REUTERS

The rand was softer in afternoon trade on Friday but off the day’s lowest levels, as the dollar weakened against the euro and the pound was sharply firmer for a second consecutive day.

Weaker commodity prices put a damper on further rand appreciation on the day.

Geopolitical tension created by North Korea’s recent missile launch over Japan kept the dollar on the back foot. Retail sales data out of the US also had an effect as sales earlier this year were less robust than expected.

Spending at US retailers fell in August with consumers buying fewer goods at home-improvement stores, car dealerships and online, Dow Jones Newswires reported. Retail sales increased by a revised 0.3% in July, down from an originally reported 0.6% increase.

Consumer spending is the main engine of the US economy, accounting for more than two-thirds of total economic output. Weak data may lessen the chances of an interest-rate hike in the US later in the year.

On Thursday, rand losses against the pound were substantial following the warning from the Bank of England of possible interest-rate increases in the future, to contain inflation. It has kept interest rates unchanged so far, despite rising consumer inflation.

Analysts expect weakness in the rand to be temporary as it usually finds support in a weaker dollar environment.

TreasuryOne currency trader Phillip Pearce said that this was evident on Thursday, when the rand was range bound until the release of US inflation data, which came in higher than expected.

"This saw a knee-jerk movement up to R13.27 to the dollar before the rand retraced immediately thereafter," he said.

If markets can continue to ignore the tension from the missile launch by North Korea, the rand could test R13.05. "But it was more likely that the rand would remain range bound between R13.05 and R13.20 over the short term," Pearce said.

At 3.30pm the rand was at R13.1639 to the dollar from R13.1166, R15.7652 to the euro from R15.6372; and R17.8782 to the pound from R17.5787, a loss of 1.7%.

The euro was at $1.1976 from $1.1918.

The pound was at $1.3584 from $1.3396 after crossing $1.35 for the first time since Brexit in June last year, which saw the pound plummet to $1.1949.

Rand traders were eyeing next week’s Reserve Bank meeting, with the monetary policy committee set to deliberate on interest rates. Consensus is for the Bank to reduce the repo rate from 6.75% to 6.50%.

"The economic backdrop has remained conducive to further monetary easing," said Investec economist Kamilla Kaplan.

Although August inflation was expected to tick up to an annual 4.9% from 4.6%, that is seen as only temporary. The Reserve Bank sees inflation remaining within the target range over a 6-24-month forecast horizon, Kaplan said.

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