JOHANNESBURG - South Africa's rand and equity market plunged more than 1 percent on Friday as the US mid-term elections knee-jerk reaction ran out of steam after the US Federal Reserve indicated it will pursue policy tightening.
The dollar strengthened after the US Federal Reserve kept interest rates steady, but reaffirmed its monetary tightening stance, setting the stage for a rate hike in December.
The local currency weakened to R14.33 against the greenback, while the all share index shed 2.14 percent on the day as emerging markets came under pressure.
Andre Botha, a senior currency dealer at TreasuryONE, said emerging markets were on the front foot with an initial US election reaction, but the hype slowly died down.
“Another event that stuck to the script was the US Fed that kept interest rates on hold as was widely expected,” Botha said.
“The language from the Fed also did not waiver from the previous meeting with a December rate hike looking on the cards with gradual rate hikes next year.”
The local currency had rallied to R13.87 against the dollar on Wednesday following the US mid-term elections, breaking through the R14 long-term resistance level for the first time in two months, lifted by a return of global risk appetite.
Analysts from Merchant West ,in a research note, said the dollar gained on Friday as the US Federal Reserve kept interest rates steady, but reaffirmed its monetary tightening stance.
“South Africa’s rand edged lower on Friday, giving back gains from earlier this week, as investors took profits and awaited the next market catalyst,” Merchant West said.
The local market was this week also hurt by poor activity data that indicated the moribund economy struggled to make headway in the third quarter of the year. Statistics South Africa this week said that mining production in South Africa faltered in the third quarter, sparking fears that the country could struggle to lift out of the current technical recession.
Production in the sector fell 1.8 percent year-on -year in September following a 6.7 percent decline in August.
However, manufacturing production inched up 0.1 percent on a yearly basis in September to end two successive quarters of decline. The sector let go of 25 000 people in the third quarter alone.
Mamello Matikinca, FNB's chief economist, said the retail sales to be released next week would provide a fuller gross domestic product (GDP) picture.
“We’ll get a better feel for the third quarter growth handle next week with the publication of the September retail trade sales numbers out on Wednesday,” Matikinca said.
“Assuming September retail sales growths at roughly these levels, indications are that the third quarter GDP growth rebound could well be north of 2 percent quarter on quarter, marking an exit from recession.”