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Cape Town - The rand ended last week 2 percent stronger against the dollar, flirting with breaching the physiological R13 barrier as the local unit rode the wave of weaker-than-expected US inflation and retail sales numbers and Minister of Finance Malusi Gigaba’s 14-point plan to ignite inclusive growth.

However, the rand’s volatility was expected to continue this week with all eyes on the release of South Africa’s inflation numbers and the decision of the SA Reserve Bank on its benchmark repo rates, both expected later this week.

The rand in early trade on Friday was trading at R13.22 to the greenback but strengthened to a high of R12.99 in intra-day day trade after US inflation and retail sales figures came in lower than expected before correcting to R13.04 by 5pm.

The US headline inflation declined to 1.6 percent June, from 1.9 percent in May, while its core inflation - stripping out food and energy prices - remained unchanged at 1.7 percent. Retail sales numbers in the US also declined by 0.2percent in June, following a decrease of 0.1 percent in the prior month.

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Kamila Kaplan, an economist at Investec, said the strength of the rand was supported by the market interpretation of a less hawkish US Federal Reserve, following Fed chairperson Janet Yellen’s testimony to Congress and disappointing US inflation data released on Friday.

“(Friday’s) release of the US Consumer Price Index (CPI) for June disappointed expectations, with core CPI decelerating to 1.7percent year on year, the lowest since January 2015. The rand appreciated by over 2percent since Monday to R13.03 against the dollar on Friday, realising the second best weekly spot returns out of 24 emerging market currencies.”

Kaplan expected the rand to trade in a range of R12.55 to R13.55 to the dollar, R14.40 to R15.40 against the euro and R16.45 to R17.45 against the pound this week. The weak US inflation numbers deflated hopes that the Fed would hike interest rates in September.

The local unit’s renaissance began taking shape last Wednesday as the dovish monetary policy outlook taken by the US Fed alleviated pressure on emerging markets, with the rand finally spanning a run of losses since the ANC policy conference recommended nationalising the Reserve Bank.

David O’Donnell, a senior foreign exchange dealer at Merchant West, said the rand’s sharp retracement last week was a clear display of the local currency’s ability to move aggressively on investor sentiment and the Gigaba blueprint supported the rand’s strength.