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Johannesburg - The rand strengthened by more than 1% versus the dollar to a three-week high after the US Federal Reserve postponed hiking interest rates.
"FOMC (Federal Open Market Committee) disappointed a little in their talk yesterday. Rand strength is all about the dollar and the current weak growth scenario in the US," said Ion de Vleeschauwer, chief currency dealer at Bidvest Bank.
The local unit climbed as high R12.1380/$, a level last seen at the end of May, before paring gains to 0.58% at R12.1990/$ by 14:45 GMT.
The dollar index had fallen 0.66% to a month-low, struggling to shrug-off the lack of a clear signal from the US central bank on when it would raise interest rates.
"Estimations on how deep the Fed's rate hiking cycle was going to be have been reduced," said Alexa Nicolau, a fixed income analyst at RMB. "That's a good thing for all risk assets".
US consumer prices in May recorded their largest increase in over two years, but the figures were shy of expectations, further boosting riskier emerging market assets.
However, traders and analysts said the reprieve for the rand, which has fallen more than 7% against the greenback so far this year, was unlikely to last.
"Despite the fairly dramatic improvement in the rand today, local fundamentals remain poor," said Nedbank analysts in a note.
Government bonds tracked the firmer rand, with the benchmark paper due in 2026 shedding 11 basis points to 8.37%.
