The rand weakened through R19/$ for the first time since late May on Friday, following a stronger-than-expected US jobs report, which suggested the Federal Reserve may pause its interest rate-cutting cycle.
According to the US department of labour, nonfarm payrolls (NFP) increased by 256,000 in December, surpassing economist expectations of 155,000. The unemployment rate inched down to 4.1% from the projected 4.2%.
This robust hiring trend is a double-edged sword. While it is beneficial for workers seeking employment, it may also maintain upward pressure on inflation. Consequently, this could deter the Fed from further cuts.
According to the CME Fedwatch tool, traders now predict a 97% chance that the Fed will maintain its current rates at the upcoming meeting at the end of January, and a 25% chance of a rate cut in March, down from 41% the previous day.
“The surprise NFP for December has led to a recalibration of rate-cut expectations, with traders now predicting a Fed cut only in October, significantly later than prior forecasts,” said TreasuryONE director and head of market risk Wichard Cilliers.
The rand touched its weakest level since June, reaching R19.1946/$, as the data drove a sharp rally in the dollar, causing ripple effects in emerging markets.
“The currency’s drop marked its worst performance among major currencies for the week,” said Cilliers.
“Persistent fears of higher US interest rates, combined with local economic pressures, have contributed to a fourth consecutive weekly decline for the rand, down 2.1% this week alone,” he said.
At 5.50pm, the rand had weakened 0.88% to R19.11/$, 0.49% to R19.59/€ and 0.45% to R23.37/£. The euro fell 0.39% to $1.02.
Cilliers said optimism about US economic momentum pushed Treasury yields higher, with the 10-year surging to its highest level since late 2023, pressuring equity markets to adjust to signs of reacceleration.
The JSE all share lost 0.28% to 83,466 points and the top 40 0.34%.
At 6.10pm, the Dow Jones industrial average was 1.51% weaker at 41,991 points, while markets in Europe also lost ground.
“As markets digest the implications of the US jobs report, the market is pricing a reduced probability of a rate cut at the SA Reserve Bank’s January meeting, reflecting uncertainty in a volatile global and local economic landscape,” said Cilliers.
Gold gained 0.24% to $2,690.13/oz and platinum 2.17% to $991.4. Brent crude rose 3% to $79.23 a barrel.
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