Rand tracks weaker euro despite positive local retail and inflation data

The rand was weaker on Wednesday afternoon as a rampant dollar overshadowed upbeat local inflation and retail sales data.

Despite the weaker performance‚ analysts said the rand was holding up relatively well against other emerging-market currencies‚ including the Turkish lira‚ which has lost ground following signs that recently re-elected President Recep Tayyip Erdogan intends to tighten his grip on monetary policy.

“We have seen a weakening of the rand against the major currencies since February‚ together with relatively large foreign capital outflows from bond and equity markets over the past three months‚” said IG SA analyst Shaun Murison.

However‚ year-on-year the rand is only 1.8 percent weaker against the dollar. Murison said rates were likely to remain flat for the remainder of the year‚ before eventually being raised marginally in 2019.

The dollar gained against the euro after US Federal Reserve chair Jerome Powell reiterated that the Fed was on track to raise interest rates further at a gradual pace.

“Powell's speech contained an optimistic view on the economic outlook‚ which reduced fears that trade wars will negatively affect economic valuations‚” FxPro analysts said.

Higher US interest rates‚ or the expectations thereof‚ have tended to boost the value of the dollar to the detriment of emerging-market currencies‚ which previously benefited from the era of ultra-low interest rates in developed economies.

The dollar strengthened after US President Donald Trump reversed course on his comments during a news conference with Russian President Vladimir Putin‚ saying he had full faith in the US intelligence community's conclusion that Russia attempted to interfere with the 2016 election.

Locally‚ May’s retail sales growth recovered to 1.9% from April’s sharp slowdown after new taxes came into effect. This was more than double the consensus of 0.8%‚ according to a poll by Trading Economics.

“The retail figures add to the evidence that economic conditions were stronger in the second quarter than in the first‚ when GDP fell sharply‚” Capital Economics analysts said in a note.

Earlier‚ consumer inflation for June came in slightly higher than in May‚ but was lower than expected ahead of the Reserve Bank’s interest-rate decision on Thursday. Inflation grew at an annual rate of 4.6% in June‚ from 4.4% in May. Economists expected inflation to have grown at 4.8% year on year.

At 3.05pm‚ the rand was at R13.3423 to the dollar from R13.2561. It was at R15.5106 to the euro from R15.4599‚ and R17.3972 to the pound from R17.3954. The euro was at $1.1626 from $1.1662.

Bonds trended weaker in line with the softer rand‚ with the R186 bid at 8.695% from 8.66%.

US treasuries showed little reaction to Powell’s comments‚ with the 10-year treasury bid at 2.8633% from 2.8505%.