Rand buckles under dollar strength

Cape Town - The rand has finally succumbed to dollar strength as the US unit gained momentum against most of its peers on the back of remarkably strong US employment numbers for February.

The jobs data further increased expectations of a US interest rate hike, with the CME Group’s FedWatch Tool now indicating an 88.6% chance of a rate hike by the US Federal Reserve next week, according to NKC Africa Economics.

Emerging market currencies felt the brunt, with the rand flirting with R13.28/$ before recovering to R13.26 by 12:34, still 1.05% off its overnight close of R13.13 to the greenback.

The last time the rand traded above R13.28/$ was on 14 February. Analysts pegged the range for Thursday between R12.90 and R13.35 against the US dollar.

RMB currency strategist John Cairns said it has been remarkable how well the rand and other risk markets have managed to handle the re-pricing of Fed hike expectations over the past two weeks.

"But the markets have not been able to completely ignore the pressure from the US: yesterday’s remarkably-strong US ADP employment, which all but ensures the Fed will increase rates next week, has sent the dollar stronger and put all risk assets under pressure," he wrote in a note to clients.

NKC said weaker-than-expected local business confidence data also weighed on the rand, but most of the pressure is from a stronger dollar.

Cairns maintained that the immediate risk to the local unit is further dollar strength.