Rand under pressure as market awaits Fed rates call

Johannesburg - The rand traded a touch softer against the dollar on Monday, with little scope for substantial gains as the market waits to see whether the Federal Reserve will commence raising US rates this week.

Government bonds were also on the back foot in early trade, while the Top 40 index ticked up 0.38%, pointing to the local bourse opening 165 points higher.

At 09:40 the rand was changing hands at R13.59/$.

Traders and analysts said the local unit had benefited from short-covering in the previous two sessions, but was likely to come under renewed pressure ahead of the US Federal Reserve's policy meeting on Wednesday and Thursday.

Expectations that the Federal Open Market Committee (FOMC) is set to start hiking US interest rates have drawn investment away from high yielding, but risky emerging markets.

An economic slowdown in China has also dampened appetite for the commodity currencies of countries such as South Africa which export to the world's second-largest economy.

"We expect rand bulls to remain apprehensive ahead of Thursday’s FOMC decision because a hike has not been fully priced into the market," Barclays Africa said in a note.

"Moreover, Asian equity markets are down this morning after yesterday’s softer-than-expected China industrial production data, which suggests that extended rand short covering is likely to be limited today."

Chinese shares slipped after disappointing data over the weekend, with the CSI300 index and Shanghai Composite Index down 3.2% and 3.1%, respectively.

On the fixed income market, the yield for government debt maturing in 2026 added 1 basis point to 8.485%.