South Africa’s commodity-linked rand edged higher in early trade on Wednesday, boosted by record gold prices as markets awaited interest rate decisions from the United States and Africa’s most industrialised economy.
At 06:52 GMT (08:52 SAST), the rand traded at 15.8150 against the dollar, roughly 0.3% up on Tuesday’s close and at its strongest level since June 2022.
Gold, a major South African export, broke through $5 200 for the first time on Wednesday, as the dollar plunged to a near four-year low amid persisting geopolitical concerns and ahead of a US Federal Reserve monetary policy decision later in the day. The rand, like other risk-sensitive currencies, often takes cues from global drivers such as US policy.
The gold price has convincingly pierced the $5 000 mark, aiding rand strength, with precious metals (including platinum) being South Africa’s key export, and gold benefiting in an environment with high geopolitical tensions.
Rand posts strong year-to-date performance
According to Investec Chief Economist Annabel Bishop, the rand has gained 3.1% this year against the US dollar, while the US dollar is 1.1% weaker in comparison, meaning the domestic currency has appreciated by 2.0% this year on its own, nudging the R16.00/USD key resistance level.
The nominal trade weighted rand (weighted on South Africa’s trade with its key trading partners) is up 2.4% since the start of the year, with the rand on its own running 2.0% stronger against the euro and 1.4% stronger against the pound this year.
Financial markets have priced in a 44% probability of a 25 basis point cut occurring in the repo rate at this week’s MPC meeting, still below 50% likelihood, but up from only a 20% probability a week ago, as the rand continues to gain.
All eyes are now on the South African Reserve Bank’s (SARB) policy meeting on Thursday 29 January. While lower inflation and a stronger rand could allow for interest rate cuts, most analysts expect the repo rate to stay at 6.75%.
Dollar weakness continues amid Trump comments
The dollar struggled to bounce back Wednesday following another selloff fuelled by Donald Trump’s suggestion he was happy with the currency’s recent decline.
“No, I think it’s great,” he told reporters in Iowa as the dollar hit its weakest level against the euro in four-and-a-half years. “I want it to be — just seek its own level, which is the fair thing to do.”
Investors have shown concern over the sustainability of ballooning US debt alongside volatile US policies, including trade threats against European nations and Canada.
Asian markets rally on tech gains
Equity markets performed well in Asia after the S&P 500 clocked another record high in New York thanks to a surge in tech titans including Apple, Microsoft and Amazon.
Seoul hit another all-time peak as chipmakers Samsung and SK Hynix rallied, while there were also big gains in Tokyo, Hong Kong and Shanghai.
However, Jakarta plunged more than eight percent after index compiler MSCI said it would hold off adding Indonesian stocks to its indexes due to ownership concerns.
Traders are keeping a close watch on earnings this week from Microsoft, Meta, Tesla and Apple.
