JOHANNESBURG: South Africa's rand edged lower on Wednesday in cautious trade ahead of an interest rate decision that is set to test the currency's recent rally and its ability to draw yield-seeking investors.
At 1500 GMT the rand was 0.14% weaker at 13.9800 per dollar, inching closer to the 14.00 mark that has in recent times determined the momentum of the currency either direction.
South Africa's central bank meets on Thursday. According to a Reuters poll last week, it is set to cut interest rates by 25 basis points, while forward rate markets on Wednesday showed investors pricing in a close to 40% probability of a cut by that margin.
While a cut might reduce the rand's carry-trade advantage, the impact on the currency could be limited by expectations the Federal Reserve will also cut rates, on July 31.
The rand had managed to withstand the greenback's recovery in the last two sessions and in early trade on Wednesday touched a session-best 13.9425, aided in part by a solid retail sales print boosting bets the economy would avoid a second consecutive quarterly contraction.
But as traders in New York came online later in the session the rand stalled, with dollar bulls emboldened by better-than-expected data on US jobs, inflation and retail sales in previous sessions.
The mood across emerging markets was not helped by a threat by US President Donald Trump to put tariffs on another $325 billion of Chinese goods.
Government bonds were flat, with the yield on the benchmark 2026 instrument was at 8.025%.
On the bourse, stocks fell alongside emerging market assets amid resurfacing worries over the U.S-China trade conflict.
The benchmark JSE Top-40 Index was down 0.76% at 51,565 points while the broader All-Share Index dropped 0.83% to 57,573 points.
"The far east (is) softer overnight and that's trickled into our market. That seems to be on the back of Trump wanting to slap more tariffs on China. That's created a little bit of nervousness," said Ryan Woods, Independent Securities trader.
Aspen and Sappi were the worst performers on the blue-chip index, falling by 3.73% to 99.96 rand and 3.08% to 50.48 rand.
Mining companies Anglo American Platinum and Impala Platinum, a midcap, dropped 2.83% and 5.83% respectively as the platinum price fell.