Rand Plummets Towards R17

The South African rand has come under renewed pressure, falling from below R16 to the US dollar to around R16.70, its weakest level since July. On Monday morning, the local currency was trading at R16.71 to the US dollar, R18.67 to the euro, and R22.06 to the British pound.

Annabel Bishop said the rand has weakened much less against the euro and pound, suggesting the latest move is partly about dollar strength rather than a sharp deterioration in South Africa's fundamentals. The stronger US dollar and rising global bond yields have encouraged investors to pull back from emerging-market assets.

The US Federal Reserve's decision to raise interest rates by 25 basis points to 3.75%-4.00% has also supported the dollar. The South African Reserve Bank raised its policy rate by 25 basis points to 7.25%, citing inflation risks linked to the Iran conflict and higher energy prices.

Governor Lesetja Kganyago has continued to emphasize the importance of returning inflation toward the central bank's 3% target. The latest US employment report showed the world's top economy created just 29,000 jobs in September, well short of forecasts for around 90,000.

Markets immediately repriced the likelihood of a Fed rate hike, with CME's FedWatch tool seeing just over a 20 percent chance, compared with more than 65 percent early last week. The data provides some support for the rand, although weak economic growth remains a concern.

South Africa recorded a trade surplus of R20.5 billion in August, exceeding expectations. Exports declined 5.8% month over month to R181.8 billion, while imports fell 7.8% to R161.3 billion. Producer price inflation stood at 5.0% year over year.

Stephen Innes at SPI Asset Management wrote that the recent hiring trend has settled into a 'not-too-hot, not-too-cold' zone of roughly 40,000 to 60,000 jobs a month. Core PCE is still uncomfortable at three percent year over year, but the shorter-term pulse has cooled noticeably.