Rand weakens on shifting US rate hike sentiment

Johannesburg - The rand weakened against the dollar on Tuesday as uncertainty of when the United States Federal Reserve will raise interest rates mounted, while stocks opened slightly lower.

Investors are expected to turn their attention to a speech by Federal Reserve Bank of San Francisco president John Williams later on Tuesday, reflecting on the economic outlook in the world's top economy, traders said.

Another key meeting will be on Thursday when the US Federal Open Market Committee publishes the minutes of the September policy meeting.

At 09:45 the rand weakened 0.53% to R13.6735/$, compared with Monday's close of 13.6020

Dollar strength prevented the rand from rallying alongside its Asian peers as improving investor risk appetite gave support to the greenback after falling to a near two-week low on Friday.

While the Fed could be forced to hold off tightening this year, the policy divergence theme that has supported the greenback remained in place.

"The markets are struggling to get to grips with the implications and the potential for further adjustments remains real," said John Cairns a currency strategist at Rand Merchant Bank.

A Fed official, Eric Rosengren, said he still expects the Federal Reserve to raise interest rates this year despite what the head of the Boston Fed called a "weak" September jobs report, which could signal a more significant economic slowdown that delays the policy tightening.

"Should the Fed president's tone prove to be hawkish, we would expect the ZAR’s recent short-covering to run out of steam," said Peter Worthington an economist at Barclays Africa.

Yields on government bonds were mixed, with the benchmark issue due in 2026 adding 0.5 basis points to 8.255%.

On the bourse, SABMiller [JSE:SAB] was among the biggest losers after the takeover target reported a modest 2% rise in quarterly sales.

The Top 40 index opened 0.54% lower at 46 445 points.

On the local front, purchasing manager's index data showed a continued contraction in output from private firms and lower orders in September as the weak economy took its toll on companies.

READ: PMI falls as shaky economy takes toll on private sector

The economy is beset by constraints including electricity shortages and labour unrest, and contracted in the second quarter, the first decline in a year.