Rand Falls Below R16.60/$ as Attention Shifts to US Economic Data

The rand slipped past the R16.60 threshold against the US dollar during intraday trading on Thursday, hitting its lowest level since July.

By 11:55 on 1 October, the local currency had reached R16.61/$, before slightly recovering to trade within a limited range of R16.41 to R16.57.

The rand’s performance has been predominantly influenced by events in the US rather than local factors.

Bianca Botes, managing director at Citadel Global, noted that the rand had given up its recent modest gains as a stronger US dollar and escalating global yields continued to impact emerging-market currencies, including the rand.

Increasing yields on US debt attract global capital towards the dollar, simultaneously indicating that investors are becoming increasingly concerned about the US economy and its burgeoning debt, requiring higher returns for the associated risk.

Concerns are also mounting that the ongoing war between the US and Iran may lead to a sustained increase in international oil prices.

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Observers anticipate additional pressure on the rand, as several US economic indicators scheduled for release on Thursday are expected to shed light on the world’s largest economy’s condition and the future trajectory of interest rates.

Later today, the US initial jobless claims and the Institute for Supply Management’s manufacturing survey will be published. These results will influence the narrative leading up to Friday’s much-anticipated non-farm payrolls report, a key indicator of the US job market’s health.

Botes added: “We’ll also pay attention to insights from a significant number of Federal Reserve (Fed) officials speaking later.”

The insights and data from Fed representatives will be carefully monitored for indications regarding the future direction of US interest rates and, consequently, the dollar.

Both South African and US market participants are attentively searching for signs of potential interest rate hikes. In September, interest rates were elevated by 25 basis points in both South Africa and the US.

Goldman Sachs has revised its prediction for the next US rate increase, moving it from October to December, and anticipates two rate hikes in total for the remainder of 2026.

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On the South African front, Bank of America has adopted a more aggressive stance, predicting two rate hikes – one in September and another in November – resulting in a peak repo rate of 7.5%.

When US interest rates rise, investors can achieve higher returns by allocating their funds to US investments. This often leads them to sell off emerging market assets (such as South African bonds and equities) and redirect their money to the US.

This action results in the sale of rands and the purchase of dollars. As more individuals offload rand assets, its value decreases.