Rand slips to three-month low as dollar bounces
The rand was much weaker on Monday morning, touching R12.25/$ for the first time since mid-January before Cyril Ramaphosa was sworn in as head of state.
A weaker rand breeds inflation, which economists had expected to pick up from a seven-year low reached in March.
Reserve Bank governor Lesetja Kganyago also cautioned in March that inflation might have reached a low point in the cycle, with increases in value added tax (VAT) and other indirect taxes expected to put upward pressure on prices.
On Monday, the weakness in the local currency came courtesy of a strong dollar, as the expectation grew that higher oil prices will drag US inflation higher, thus leading the US Federal Reserve to increase interest rates at a faster rate.
US inflation has consistently run below the Fed’s 2% target, prompting the world’s most influential central bank to be moderate in its rate-hiking cycle.
The yield on the benchmark US 10-year note flirted with a symbolic 3% mark, which would mark its highest point since January 2014, boosting the value of the dollar at the expense of other currencies.
The US and UK feature among developed economies expected to further raise interest rates in 2018, although the Bank of England (BoE) governor Mark Carney last week tempered expectations of such a move in May when its monetary policy committee will meet to decide on rates.
At 10.03am, the rand was at R12.2542 to the dollar from R12.0596, R15.0293 to the euro from R14.7977 and at R17.1610 to the pound from R16.9431.
The euro was at $1.2265, from $1.2275.