On Monday, the rand hit its lowest level in 2023 against the US Dollar amidst a strong United States jobs report and an increased likelihood of continued interest rate hikes by the Federal Reserve.
Reuters reported that the rand traded at 17.70 against the US Dollar on Monday, over 1% weaker than its previous close.
Nolan Wapenaar, the co-chief investment officer at Anchor Capital, said the rand weakness was predictable given the economic situation.
He said the markets experienced a tremendous January, resulting in an over-optimistic view of how fast inflation will come down.
It also created unrealistic expectations of how soon the Federal Reserve will move from an interest rate hiking cycle to a cutting cycle.
“The jobs number came as a reality check, and we are backtracking on expectations, especially on the equity and interest rate markets,” he said.
One result was that the US dollar, which has shown weakness for most of January, strengthened following the strong jobs number.
Wapenaar explained that the job of the US Federal Reserve is to slow the economy enough to bring inflation down, which it is doing through increasing interest rates.
The better-than-expected job numbers may show the economy is strong than expected, which, in turn, will lead to interest rate increases.
“People expected the US labour market to cool down, which would have shown the Fed is moving in the right direction. That did not take place,” he said.
“We have seen increased job creation and the lowest unemployment rate in decades. That has rattled people who expect the Fed to go harder and longer at increasing interest rates.”