(Updates Rand, adds bonds and stocks)
JOHANNESBURG, June 3 (Reuters) – South Africa’s rand weakened Thursday, stepping back from a more than two-year high at the start of the session as the dollar surged on stronger-than-expected US private wage numbers pointing to an improvement in the labor market Market.
At 1506 GMT, the rand was 0.59% weaker at 13.6050 per dollar, after previously hitting 13.4975, its highest level since February 2019.
The earlier rally was mainly driven by a growing appetite for riskier but high yielding investments.
“Increasing bets that the Fed’s monetary tightening may not be imminent has resulted in a rotation from USD to higher beta currencies like ZAR, with SA’s high real returns still proving too enticing to ignore” , said economists from ETM Analytics.
Federal Reserve officials have repeatedly said the bank will try to keep lending rates low for some time and insisted that the current price pressures are temporary.
Low interest rates in the United States and other developed economies have favored high yielding currencies like the rand, which offer higher yields.
Some traders opted to take profits, expecting closely watched US labor market data on Friday that should provide further clarity on whether the faster-than-expected pace of economic recovery can be sustained and what that could mean for monetary policy. South Africa will also publish data on economic growth for the first quarter early next week.
“There seems to be a slight reluctance to set in,” said the ETM analysts.
Shares on the Johannesburg Stock Exchange (JSE) tumbled Thursday, making up most of last week’s gains as strong US data overshadowed the mood of the economic recovery with concerns about impending inflation.
Rising inflation could force the US Federal Reserve to withdraw support for the economy by raising interest rates.
Analysts have said that worries about higher inflation and interest rates are dragging the market, like most global markets, as much of the South African stock market is linked to global markets.
The benchmark all-share index closed 1.82% to 67,791 points and the blue chip index of the top 40 companies closed by 1.93% to 61,573 points.
Government bonds strengthened and the return on the benchmark instrument, due in 2030, fell 3 basis points to 8.855%. (Reporting by Mfuneko Toyana, Olivia Kumwenda-Mtambo and Promit Mukherjee; editing by Steve Orlofsky)