JOHANNESBURG: South Africa's rand extended losses to its weakest in more than two months on Wednesday while bonds also suffered after April consumer prices dipped, dampening the chances of a rate hike on Thursday.
By 0850 GMT the rand had plunged more than 2 percent to 15.8750 per dollar, its weakest levels since March 16 according to Thomson Reuters data.
The unit fell sharply in early trade as the dollar rose on revived expectations of an early Federal Reserve rate hike after data suggested the U.S. economy is regaining momentum.
Government bonds also stretched losses, with the yield for the 2026 benchmark adding 12 basis points to 9.495 percent.
The central bank, which has raised rates 100 basis points in the last three meetings, is due to decide on rates on Thursday when it concludes a three-day meeting of its policy committee.
Traders and analysts said the softer inflation print, that saw prices slow to 6.2 percent year on year in April from 6.3 percent previously, bolstered the case for South Africa's Reserve Bank to keep lending rates on hold.
While the lower headline figure was in line with expectations core inflation edged up, albeit at a slower pace, allowing the central bank "breathing space", said chief economist for Africa at Standard Chartered Bank Razia Khan.
"We expect a pause in the tightening cycle on Thursday, but the adoption of still-hawkish language," Khan said.
Along with the firming dollar, which has benefited from recent positive economic data, traders said domestic politics were set to keep the rand on the ropes, especially with the looming threat of ratings downgrade in coming months.
The rand has been under pressure since Monday, weighed down by domestic political uncertainty after a news report that Finance Minister Pravin Gordhan faced arrest. The report was denied by the presidency, police and prosecutors.
Gordhan said late on Tuesday the reports of his imminent arrest amounted to an attack on the Treasury.
"If he is forced out of the Treasury, we'd likely see an evaporation of investor confidence and a downgrade this year would become a near certainty," said emerging markets analyst at 4Cast Rajiev Rajkumar.
On the bourse, the Top-40 index was up 0.63 percent to 46,687 points, led higher by locally listed companies with large foreign share holdings that benefited from the weaker rand.
Shares of Naspers, British American Tobacco and MTN were all up more than one percent in early trade.
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