S/African money, bonds weaken on U.S. rate hike expectations

July 20, 2015 2:05 PM

At 1425 GMT, the rand was trading 0.56 percent weaker at 12.4250 to the dollar compared with its New York closing level on Friday.

South African rand notes

South Africa's rand weakened in cautious trade on Monday, July 20, against a surging U.S. dollar ahead of local consumer inflation data and interest rate decision this week.

The greenback was lifted by expectations for a Federal Reserve interest rate hike this year, after data showed U.S. consumer prices rose for a fifth straight month in June as well as a solid housing market.

At 1425 GMT, the rand was trading 0.56 percent weaker at 12.4250 to the dollar compared with its New York closing level on Friday.

South Africa's June consumer inflation data is due out on Wednesday and the decision on interest rates on Thursday.

"Local market focus this week will be on the outcome of the Monetary Policy Committee, so some caution ahead of this. Technically the local unit has failed to maintain any of the gains it had posted of late,"Nedbank analysts said in a note.

A Reuters poll last week suggested the South African repo decision will be a close call with 17 economists forecasting an increase in interest rates, while 15 expected the central bank to keep rates on hold.

Government bonds also weakened on the likelihood of a Fed rate hike, and the yield for the 2026 benchmark added 10.5 basis points to 8.16 percent.

"Today's weakness is a continuation from Friday after we got better-than-expected U.S. CPI numbers, and that probably reinforced the idea of an earlier Fed hike," said Alexa Nicolau, a fixed-income analyst at RMB.