Johannesburg: The rand weakened after the US Federal Reserve signalled the end of monetary policy easing, increasing speculation borrowing costs will rise and narrowing the interest-rate advantage of emerging-market assets.
The rand appreciated 1 per cent to 7.6875 per dollar on Friday in Johannesburg from a close of 7.6120 Thursday.
The move pared its weekly advance to 0.1 per cent.
The Federal Reserve raised its discount rate for the first time in three years, boosting the dollar and reducing investor appetite for alternative assets such as the rand.
The Fed raised the rate it charges banks for direct loans by a quarter point to 0.75 per cent.
Discount rate
"There's a knee-jerk reaction in markets because the rise in the discount rate probably brings forward the expected date of a rise in the fed funds rate," said Ian Cruickshanks, head of research at Nedbank Treasury in Johannesburg.
"If US rates begin to rise from their rock-bottom levels it reduces the incentive to take dollars and place them in emerging markets. The carry trade will come under pressure."
South Africa's currency rallied 28 per cent last year as near-zero rates in the US boosted the rand's appeal in so- called carry trades, whereby investors borrow money in currencies of countries with low interest rates to invest in markets with higher returns.
South Africa's benchmark interest rate of 7 per cent compares with the 0.25 federal funds rate for overnight borrowing between banks.
Gold and platinum slumped as a stronger dollar reduced the appeal of the precious metals as a store of value. Gold and platinum account for about 22 per cent of South Africa's export earnings according to the Johannesburg-based Chamber of Mines.
