EDWARD WEST
The rand edged 0.73% weaker to R18.69 per dollar by late Tuesday evening even though the US currency continued to tread softer - a weaker dollar usually has the effect of strengthening the rand’s value.
A pullback in the dollar helped relieve pressure on most emerging market currencies on Tuesday, as investors continued to assess the likelihood of aggressive US import tariffs, though the euro edged higher against emerging European currencies, Reuters reported.
MSCI's gauge of emerging market currencies climbed 0.4%, on track for its best day in over four months, while a measure of stocks rose 0.2%. This is in contrast to South Africa’s weaker rand, while the JSE All Share Index, dragged down by the falling share prices of two of its biggest companies Naspers and Prosus, ended 0.71% lower.
TreasuryONE Head of Market Risk Wichard Cilliers said the softer dollar does not necessarily indicate underlying weakness.
“After a significant rally, the Dollar Index had reached elevated levels, which may have led to over-valuation. As a result, a correction toward fair value is underway. US Treasury yields remain strong, with the 10-year yield approaching 4.7%, just below the April 2024 peak of 4.74%, he said.
Markets are awaiting the release of key US economic data to indicate possible interest rate changes, including the Job Openings and Labor Turnover Survey and the ISM Services Index, which was expected to be released later on Tuesday.
In Europe, consumer price index data showed a 0.4% increase month-on-month and a 2.4% rise year-on-year, in line with expectations. This provided some support for the euro, which strengthened by 0.16% to 1.0402 against the US dollar.
Tuesday was the third day of decline for the US dollar, with a nearly 0.6% slide on Monday after a report that aides to US President-elect Donald Trump were exploring less aggressive tariffs than Trump had suggested during his presidential campaign.
Uncertainty over the potential impact of Trump's threatened tariffs and expectations of a slower pace of rate cuts from the US Federal Reserve have kept the dollar strongly supported in recent weeks, pressuring emerging markets at the start of the year.
The rand value against the US dollar is key for imported inflation, with SA importing its oil and petroleum products in the main, which are US dollar based, as are agricultural food and other commodities on international markets.