The South African rand edged higher on Wednesday, buoyed by stable domestic inflation data and stronger-than-expected retail sales figures, as global investors looked ahead to the U.S. Federal Reserve’s interest rate decision later in the day. By 1511 GMT, the rand was trading at 17.96 against the dollar, marking an increase of approximately 0.4% from Tuesday’s close.
The currency’s previous day had seen a decline of more than 1% due to escalating tensions between Israel and Iran, which prompted many investors to retreat to safer assets. This flight to safety dampened the rand’s appeal, and the local unit remained under pressure for much of Wednesday’s trading session.
However, optimism returned following the release of data from Statistics South Africa, which reported that the country’s inflation rate held steady at 2.8% in May. This figure was consistent with forecasts made by economists surveyed by Reuters and comfortably below the South African Reserve Bank’s target range of 3% to 6%. According to Casey Sprake, an economist at Anchor Capital, this data strengthens the case for a potentially more accommodating interest rate stance during the monetary policy meeting scheduled for July.
Further supporting the rand’s recovery were the April retail sales figures, which significantly surpassed expectations. The report indicated a year-on-year increase of 5.1%, whereas economists had anticipated an increase of merely 3.1%, as noted in a Reuters poll.
In the broader market context, the dollar traded about 0.2% weaker against a basket of currencies as traders anticipated the Fed would maintain current interest rates amid ongoing geopolitical tensions in the Middle East. The Johannesburg Stock Exchange also reflected a positive sentiment, with its Top-40 index closing up by 0.4%.
However, South Africa’s benchmark 2035 government bond showed signs of slight weakness, with the yield increasing by 1 basis point to reach 10.12%.