FED’S RATES MOVE HITS RAND, JSE

THE RAND touched a one-month low against the dollar yesterday and stocks dropped, after the US Federal Reserve unexpectedly brought forward its projections for interest rate hikes.

The rand fell as low as R14.16 against the dollar, its weakest since May 17, before paring losses to trade roughly 0.5 percent weaker at R14.10 by 5.53pm.

The Fed’s signal on Wednesday that US rates could rise sooner than previously expected dented appetite for emerging market currencies like the rand because it lessened their appeal for carry trade, where investors borrow cheaply in one currency and buy assets where returns are higher.

Along with favourable commodity prices, carry trade has helped make the rand the best-performing emerging market currency in 2021, despite the weak state of the local economy.

Data yesterday showed retail sales fell 0.8 percent in month-on-month terms in April, their fourth monthly decline in five months which suggests poor consumer demand.

Shares on the JSE were hit as investors worried a more hawkish Fed would restrict fund flows into emerging market equities.

“Clearly the Fed is more worried about inflation than two months ago. And we are still going to get high inflation numbers out of the US for at least another three or four months,” said Wayne McCurrie, portfolio manager at FNB.

The JSE’s benchmark all share index lost 1.08 percengt to end the day at 66 585.48 points, bringing it back to levels seen on May 27. The blue-chip Top40 index also declined 1.08 percent to 60 399.88 points.

Among the day’s biggest losers were bank and mining stocks. The banking index fell 3.14 percent to 7 657.97 points while the resources 20 index was down 3.33 percent at 61 985.31 points as gold and platinum prices retreated.

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