The Johannesburg Stock Exchange. File picture: Siphiwe Sibeko
JOHANNESBURG - The rand's early rally yesterday was halted by a stronger dollar after the US data showed an uptick in underlying inflation, which cemented market expectations of a December US Fed rate hike, while economists were keeping a keen eye on neighbouring Zimbabwean events.

Economists warned that events in Zimbabwe might have a spillover effect on the local currency.

Zimbabwe is South Africa’s fifth largest trading partner in Africa, and prior to its clampdown on imports, South Africa exported more than R230billion a year to the country.

The local unit was bid at R14.39 against the dollar by 5pm yesterday from a day’s high of R13.32, while it firmed 0.4percent against the British pound to R18.86, but weakened 0.5 percent to R16.96 against the euro.

The market is also awaiting Moody’s and S&P Global Ratings' review of the credit ratings of South Africa next week.

Nedbank analyst Reezwana Sumad said the rand continued to be at the mercy of local and regional headlines. “Although the rand did recover from the high posted of late, we have yet to hold below the technical level around R14.38 to the dollar,” Sumad said.

Tiffany Pollock, a forex and money market trader at Merchant West, said the political situation in Zimbabwe would have a short-term effect on the rand.

“There have been stories that many of Zimbabweans are rushing to take their money out of the country and a full-blown coup would lead to a further rush of refugees.”

“In the long term, South Africa could benefit from a political and economic change in Zimbabwe, but in the short term it could mildly add to rand pressure,” Pollock said.

Last month, South Africa and Zimbabwe signed five strategic agreement and memoranda of understanding, which aimed to strengthen bilateral relations.

The agreements, which were sealed at the second session of the South Africa-Zimbabwe Bi-national Commission, chaired by President Jacob Zuma and Zimbabwean President Robert Mugabe, focused on areas of energy, environment, information communication technologies as well as sport and recreation.

William Jackson, a senior emerging markets economist at Capital Economics, said while there were some concerns that the military takeover in neighbouring Zimbabwe could have ramifications for South Africa’s economy, the impact was likely to be minimal.

“The short point is that direct economic linkages between South Africa and Zimbabwe are small. For example, South Africa’s total exports to Zimbabwe account for only 0.5percent or so of gross domestic product,” Jackson said.

The US headline inflation for October came in at up 0.1percent to 2percent from September’s print. US core inflation, which leaves out volatile food and energy components, meanwhile, rose 1.8percent which was above the 1.7percent consensus forecast.