USD/ZAR: Rand pulls back from 24-week peak ahead of FOMC rate decision

Key points

The South African Rand pulled back from a fresh 24-week high against the US Dollar on Wednesday ahead of the outcome of the Federal Reserve’s policy meeting, which could leave the exotic currency vulnerable to losses.

The Rand has advanced over 6% so far in July, supported by China’s pledge to prop up post-COVID economic recovery, foreign purchases of South African government bonds and a weaker dollar in the first half of the month.

In a morning briefing, Rand Merchant Bank said that the Rand was “stretched too far” following recent advance.

RMB added “event risk is huge tonight”, as it referred to the FOMC policy decision later in the day, while a sharp retreat in the South African currency was a possibility.

The Federal Reserve is largely expected to hike benchmark interest rate by 25 basis points, as it concludes its two-day meeting.

Still, market players remained divided on the odds of future rate hikes. A rather hawkish message from the Fed could underpin the US Dollar and mount pressure on emerging market currencies such as the Rand.

Meanwhile, in terms of macro data, South Africa Rand traders will be paying attention to producer price inflation figures for June due out on Thursday.

As of 9:24 GMT on Wednesday USD/ZAR was gaining 0.90% to trade at 17.7009. Earlier in the session, the exotic Forex pair went down as low as 17.5024. The latter has been the pair’s weakest level since February 8th (17.4659).