South African rand muted as firmer dollar weighs

JOHANNESBURG: The South African rand was subdued on Tuesday as a firmer dollar kept the risk-sensitive currency under ​pressure ahead of the US Federal Reserve’s policy decision.

At ‌0811 GMT, the rand traded at 16.7875 against the dollar, down about 0.2% from its previous close.

The greenback gained against a basket of ​currencies as investors awaited the conclusion of the Fed’s ​two-day policy meeting on Wednesday.

Expectations that the Fed will ⁠hold interest rates steady stand at 62%, while 38% ​of market participants expect at least a 25-basis-point rate hike, according ​to CME FedWatch, up from 16% a week earlier.

“The rand is on the defensive, trading near peaks last seen in early May, which underscores ​its vulnerability,” ETM Analytics said in a note.

The research firm ​said the currency’s subdued reaction to lower oil prices was a concern, ‌noting ⁠that the rand had recently tracked movements in crude markets more closely. “Since the South African Reserve Bank left rates unchanged, the rand has lost some of this correlation and now ​appears more vulnerable.”

South ​Africa’s central bank surprised ⁠investors and economists by keeping its main lending rate unchanged last week, saying its policy ​was restrictive enough to return inflation to its ​target ⁠within two years.

On the domestic front, data released on Tuesday showed South Africa’s composite leading business cycle indicator fell 0.3% month-on-month in ⁠May.

On ​the Johannesburg Stock Exchange, the Top-40 ​index was flat.

South Africa’s benchmark 2035 government bond strengthened, with the yield falling ​7.5 basis points to 8.515%.