JOHANNESBURG (Reuters) – South Africa’s rand weakened early on Friday as a rising dollar ended its rally, although the South African currency remained near two-month highs following another rate cut by the country’s central bank.
At 0630 GMT, the rand was 0.62% weaker at 17.7200 per dollar, having rallied to 17.5100, its highest since March 27, the day before after the South African Reserve Bank (SARB) lowered lending rates by 50 basis points.
The bank cited the need to provide relief to households and companies battered by the coronavirus and a nationwide lockdown now in its eighth week, saying the economy was likely to shrink 7% before recovering in 2021 but urgent reforms were needed.
That lifted the rand as investors cheered the aggressive action from the usually conservative central bank, even as the rate cut reduced the return on the currency, but a worsening of U.S.-China tensions capped those gains.
China is set to impose new national security legislation on Hong Kong after last year’s pro-democracy unrest, risking fresh protests in the city and prompting President Donald Trump to warn that Washington would react “very strongly” to the laws.
“The market seems to be comfortable with the SARB’s decision to prioritize growth, said economists at ETM Analytics in a note.
“That risks to inflation remain tilted firmly to the downside is another factor easing investors’ concerns, while the deep discount offered on the rand remains an attractive trade.”
Bonds gained, with the yield on the 2030 government bond down 1.5 bps to 8.885%
Reporting by Mfuneko Toyana, editing by Larry King