South Africa’s rand hovers near one-month low after hawkish Fed

South Africa’s rand fell early on Friday and was set for a weekly loss after the U.S. Federal Reserve’s hawkish message on monetary policy lifted the dollar higher and dented investors’ appetite for riskier assets.

At 0625 GMT, the rand traded at 14.11 against the dollar, 0.23% weaker than its previous close and not far off a one-month low of 14.16 hit on Thursday.

The currency has weakened more than 1.5% since Monday.

The Fed’s sudden turn on Wednesday revitalised the dollar and U.S. Treasury yields, diminishing the attraction of emerging market currencies for carry trade – whereby investors borrow low-yielding currencies and convert them to buy assets where returns are higher.

Along with favourable commodity prices, carry trade had helped make the rand the best-performing emerging market currency in 2021, despite the weak state of the local economy.

In fixed income, the yield on the benchmark 2030 government bond was down 0.5 basis points at 8.935% in early deals, reflecting slightly firmer prices.