The South African rand. Picture: REUTERS
The South African rand. Picture: REUTERS

The rand pared losses on Friday afternoon, but still traded above the psychological R13 to the dollar mark — a level last seen in December.

The local currency fell as much as 2.4% on the dollar before staging a strong comeback in late trade as sentiment towards emerging markets improved, exemplified by the recovery in the Brazilian real.

The rand has been caught up in a whirlwind of poor sentiment towards emerging markets, which forced several central banks to raise interest rates to attract foreign capital. These developments came as the US Federal Reserve looked set to further normalise its monetary policy by raising interest rates during its scheduled meeting next week, following years of unconventional monetary stimulus.

Markets expect the Fed to increase rates at least another twice in 2018. The prospect of higher rates in the US has previously boosted the dollar at the expense of other currencies.

The slide in the rand has added to inflation concerns, coming at a time when some economists are reviewing the local growth outlook, after poor first-quarter GDP figures.

The South African Reserve Bank’s monetary policy committee held the repurchase rate steady at 6.5% in May, warning that consumer prices were likely to rise in the coming months in light of the volatile rand, higher oil prices and the increase in VAT.

"Traders [are] running the rand … as the rhetoric against emerging markets gathers momentum. Turkey, India and Indonesia have all raised rates to stem the weakness," said David Shapiro, deputy director at Sasfin Securities in a tweet.

Local bonds stabilised at much weaker levels in the afternoon, in sympathy with the rand. The yield on the benchmark R186 bond was last bid at 8.99% from 8.79%.

At 4.07pm, the rand was at R13.0696 to the dollar from R13.0246. It earlier reached a worst level of R13.2871. It was at R15.3720 to the euro from R15.3633, and R17.4931 to the pound from R17.4768. The euro was at $1.1761 from $1.1798.