Rand Falls as Rate Hike Bets Rise and Dollar Strengthens

The South African rand weakened after US Federal Reserve Chairman Kevin Warsh's speech raised expectations of a rate hike in September. The rand was trading at around R16.16 by mid-morning on Tuesday, down from below the R16 mark to R16.19 on Friday.

Investec chief economist Annabel Bishop said markets initially interpreted Warsh's comments as hawkish, before recovering to R16.12 on Monday afternoon. However, she noted that the probability of a 0.25 percentage point US rate hike in September jumped to 61% from 43%, but later digested and viewed as less hawkish.

Warsh emphasized the importance of keeping inflation expectations 'well anchored' and avoiding an unanchored situation, which Bishop said was not a signal for urgent higher rates. She added that the rand's movements indicate pressure has largely come from a stronger dollar rather than broad weakness in the South African currency.