South African Rand Little Changed After CPI Data

The South African rand was little changed around 16.2 per USD, as investors assessed the latest inflation data, while awaiting the SARB's monetary policy decision later in the day. South Africa's inflation rate inched up to 4.4% in August from 4.3% in July, below the expected 4.5%, but rising inflation risks continued to support expectations of policy tightening. The SARB is widely expected to deliver a 25-basis-point rate hike after leaving rates unchanged at its July meeting. Since then, the escalation of the war involving Iran has kept global energy supplies under pressure, raising the risk of higher inflation, while a potential strong El Niño could add to food-price pressures in the coming months. Meanwhile, the Fed's recent 25-basis-point rate hike could narrow South Africa's yield advantage over the US, putting pressure on the rand.

The South African rand traded around 16.3 per USD, holding near its lowest since early August, amid a firmer dollar and falling prices of key precious metals. Meanwhile, investors awaited August consumer inflation data and the SARB’s policy decision, both due on September 23. Inflation fell to 4.3% in July from 5% in June but is expected to pick up again in August after diesel-price adjustments. South Africa could be heading for a 25 bps rate hike this week, as higher oil prices and the Fed’s latest move strengthen the case for tighter monetary policy amid renewed inflation risks. The key concern is that energy-price pressure could keep inflation above target for a prolonged period. Still, the SARB's decision remains uncertain, particularly after the central bank surprised in July by keeping its repo rate unchanged at 7%. Policymakers will again face a delicate balancing act between containing renewed inflationary pressures and supporting weak domestic economic activity.

The South African rand was little changed around 16.3 per USD, helped by a softer dollar and firmer precious metals prices on the back of easing oil prices. Meanwhile, traders continued to monitor central bank actions, after the Fed delivered an expected 25 bps rate hike and signalled further tightening amid persistent inflatonary pressures from the Middle East. Domestically, attentions turns to next week's inflation data and the monetary policy decision. Expectations for a SARB rate hike increased after the Fed's move, as a narrower yield differential could weigh on the rand and fuel inflationary pressures. Still, the next move remains uncertain, with the central bank facing a delicate policy decision on Sept. 23. Inflation has been rising and, aside from a brief dip in July following fuel-price cuts, remains on an upward trend, while the economy fell back into contraction in Q2. Meanwhile, inflation expectations fell in Q3, suggesting that price pressures could ease over time.