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S.African rand hits new 20-month low as investors embrace dollar

07/05/2022 | 12:39pm EDT
Photo illustration of South African bank notes displayed next to the American dollar notes in Johannesburg

(Reuters) -South Africa's rand fell to a fresh 20-month low on Tuesday as investors embraced the safe-haven dollar amid fears of a looming global recession.

At 1625 GMT, the rand traded at 16.5775 against the dollar, 1.3% weaker than its previous close. It touched 16.6075 earlier in the day, a new low since October 2020.

The dollar index, which measures the buck against six major peers, rose around 1.5% to 106.7, a two-decade high due to investor demand during times of acute economic uncertainty, while emerging market currencies took a hit.

"The USD is overvalued, more strongly against some currencies than others, but on the whole, is trading in overvalued territory against most currencies," ETM Analytics said in a research note.

Analysts have said the rand's value against the dollar is still finding directional cues from the ever-changing outlook for U.S. monetary policy and the risk of recession down the line.

Investors will now be looking ahead to publication of minutes from last month's Fed meeting on Wednesday and U.S. employment data on Friday for fresh direction.

The Fed will likely deliver another 75 basis point (bp) rate hike in July, followed by a 50 bp rise in September, and won't scale back to quarter-percentage point moves until November at the earliest, according to a Reuters poll.

Weighed down by the energy companies, shares in the Johannesburg Stock Exchange (JSE) fell, mirroring the slide in global equities on the back of an oil slump as possible global recession curtailing demand outweighed supply disruption fears.

Overall on the JSE, the All-Share index fell 3.01% to 65,006 points, while the Top-40 index closed 3.2% lower at 58,953 points.

The government's benchmark 2030 bond rose, with the yield down 2 basis points to 10.605%.

(Reporting by Anait Miridzhanian in Gdansk and Bhargav Acharya in Bengaluru; Editing by Sherry Jacob-Phillips, Alexandra Hudson)

© Reuters 2022
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