Weak SA rand got weaker on Friday reaching 1.2% to R14.6 as the dollar regained strength across the board against emerging-market currencies and foreign investors wonder what went wrong.
Apparently, the rand went down following investors hone in on bullish comments from Federal Reserve boss Janet Yellen on interest rates.
While the surge in the greenback to a five-month high against the yen provided another rally for Japan’s Nikkei, traders in other Asian markets were more uneasy, with foreign investors removing cash from emerging markets seeking better US returns.
The SA rand went down last week following the shocking announcement of Donald John Trump as the US forty-fifth president of the US.
The news shook global markets hard with developed nations seeing broad gains but many in Southeast Asia worried about his rhetoric on international trade agreements alongside his economic policies.
Trump promised to ramp up spending on infrastructure and cut taxes. This led to warnings of a surge in inflation that could force the Fed to hike rates to cap prices. This, in turn, has led to a rush back into the dollar.
Meanwhile, Federal Reserve boss Janet Yellen confirmed a first rate rise in 12 months by saying such a move would be appropriate “relatively soon”.
“Despite no concrete economic proposals on the table from Trump’s team … the market is fully subscribing to a return of Reagan-esque fiscal [spending], along with a steeper path of interest rate normalisation.” She said the consumer price index posted its strongest gain in six months and monthly housing starts increased and as weekly new jobless claims hit a 43-year low
“The markets continue to price in a less dovish Fed in the future, as the market is still probably underpricing the actual inflationary impact of the anticipated fiscal spend,” she said
In Asia, the dollar broke above ¥110 for the first time since June and headed towards ¥111, while the euro sank against the dollar to levels not seen in 12 months, Business Day reported.
Not only the SA rand felt the market heat, the South Korean won fell 0.6%, the Indonesian rupiah shed 0.3% and the Mexican peso fell 2%. Malaysia’s ringgit was off 0.4% at a 10-month low, among emerging-market currencies,
A government official said on Friday that the country’s central bank was intervening in markets to support the beleaguered unit, which has lost 5% since last week’s US election result.