The local currency, which had strengthened to a day’s high of R13.88 against the dollar, backtracked to R14.01 by 5pm. File Photo: IOL

JOHANNESBURG – The rand’s glow following Finance Minister Tito Mboweni's Budget speech faded yesterday as emerging market currencies weakened after markets digested the US Federal Reserve’s January meeting minutes as they turned out to be less dovish than expected.

The local currency, which had strengthened to a day’s high of R13.88 against the dollar, backtracked to R14.01 by 5pm.

André Botha, a senior dealer at TreasuryONE, said the rand could expect to trade in narrow bands as the markets digest news from the Budget.

“The apocalypse that a lot of people foresaw did not materialise and there is a real possibility that we could see the rand stabilising and possibly trading lower as some of the risks that were in the market are subsiding,” Botha said.

“The US Fed minutes only confirmed that the US is taking a back step on the interest rate hiking cycle. We did not see the US dollar weakening after the release of the minutes as the market expected the tone of the minutes to be dovish.”

Emerging market currencies in January strengthened after the US central bank made a dovish turn in monetary policy. However, the detailed minutes of the US Fed January meeting made public yesterday showed that US policymakers were more split on whether to further hike rates in this year. 

“Many participants suggested that it was not yet clear what adjustments to the target range for the federal funds rate may be appropriate later this year,” the minutes said. “Many participants observed that if uncertainty abated, the committee would need to reassess the characterisation of monetary policy as ‘patient’ and might then use different statement language.” 

The rand had endured a roller-coaster on Wednesday before Mboweni presented his Budget, weakening to R14.37 before recovering as traders saw a smaller chance of a ratings cut to “junk” by Moody’s.  

The ratings agency is the only one of the top three ratings agencies to keep an investment grade on South Africa’s credit rating.

Analysts from Merchant West Capital Markets said in a note that investors would be dissecting and debating the Budget even further in the coming days with some mixed feelings. 

“The ball is now in Moody’s court on whether Minister Mboweni did enough to address their concerns, or if they will go ahead and crack the whip by issuing a negative outlook in the coming weeks (our base-case scenario),” Merchant West said.