Rand weakens as Fed chair commentary awakens dollar from its slumber

The rand was a shade weaker on Wednesday morning, largely reflecting broad dollar strength, after US Federal Reserve Jerome Powell recommitted to raising interest rates, albeit at the gradual pace.

In giving testimony to the US Congress on Tuesday, Powell painted a picture of an economy that was doing well despite global trade concerns.

The dollar strength also played out in weaker commodity prices, with the platinum price dropping to its weakest level since 2008, casting a shadow on the struggling platinum producers.

Platinum, which is used to curb emissions in vehicles, was down 1.31% to $806 per ounce in the mid-morning session.

"The dollar caught a little bit of a tailwind last night after … Powell said that the Fed should continue to hike rate gradually, prompting the late dollar buying in an illiquid market. This may indeed provide the opportunity we have been looking for since Monday," Standard Bank trader Warrick Butler said in a note.

Higher US interest rates, or the expectations thereof, have tended to boost the value of the dollar to the detriment of emerging-market currencies in particular, which previously benefited from the era of ultralow interest rates in developed economies.

The weaker rand in turn has the potential to fuel inflation, which in turn could force the South African Reserve Bank to raise interest rates.

But the latest inflation figures were surprisingly low, backing an argument by Investec economist Annabel Bishop earlier in the week that Bank governor Lesetja Kganyago could be less hawkish in tone when he delivers the rates decision on Thursday.

Inflation grew at an annual rate of 4.6% in June, from 4.4% in May, the Statistics SA data show. Economists expected inflation to have grown at 4.8% year on year on year.

At 10.49am, the rand was at R13.3248 to the dollar from R13.2561. It was at R15.4817 to the euro from R15.4599, and R17.3612 to the pound from R17.3954. The euro was at $1.1618 from $1.1662.