The South African rand was the second worst performer of emerging market currencies as it fell over two percent against the US dollar on Monday to its weakest level in over a year since July 2010, as investors dumped higher risk assets on signs that the euro zone debt crisis is far from over. Investors were worried after a weekend meeting of European finance minister that failed to come up with a resolution for the deepening euro zone sovereign debt crisis.
The weakening rand may see the market curb expectations of a rate cut over the next few months, especially after Finance Minister Pravin Gordhan said earlier South Africa’s inflation was persistent.
While Europe’s debt problems are likely to remain the market’s main focus, Thursday’s South African interest rate decision at around 1300 GMT should also give crucial direction about monetary policy going into next year.
The South African Reserve Bank’s monetary policy committee is expected to leave the repo rate unchanged at 5.5 percent but focus will mainly be on its statement after announcing the rates.
If the monetary policy committee sounds hawkish and signals a possible rate hike over the coming months, this will lift t the rand.
Today, USDZAR opened the week at 7.7689 and rose to as high as 7.7665 by 14:00 GMT.