The local currency was among the worst performing emerging markets in April.
South Africa‘s rand weakened against the dollar in early trade on Monday as the greenback stayed near its 2018 peak after US jobs and wages data did little to temper perceptions of strength in the US economy.
At 06:45 GMT, the rand traded at 12.57 per dollar, 0.48% weaker than its close on Friday.
The rand was amongst the worst performing emerging market currencies in April and has remained weak in May with the dollar, lifted by rising US Treasury yields, climbing to its highest levels this year against a basket of currencies.
“The US dollar strength observed since the beginning of May is testing emerging market resilience. South Africa and Turkey are both vulnerable due to high financing needs,” Rand Merchant Bank analyst Isaah Mhlanga wrote in a note.
He added: “We expect trade tensions and Nafta (US, Mexico and Canada) trade talks to negatively impact the rand, therefore we do not expect meaningful gains this week.”
Stocks were set to open higher at 07:00 GMT, with the JSE securities exchange’s Top-40 futures index up 0.23%.
In fixed income, the yield for the benchmark government bond due in 2026 fell 1.5 basis points to 8.33%, reflecting firmer bond prices.
Cape Town – The rand weakened by 5.1% against the dollar in April, which represented the third-worst return from a basket of emerging market (EM) peers.
According to their macro-economic overview for April, Herman van Papendorp (head of investment research & asset allocation) and Sanisha Packirisamy (economist) of Momentum Investments said the rand’s losses against the pound and euro were 3.6% and 3.1% respectively during the month.
The rand traded weaker against major currencies as the market’s focus shifted to geopolitical events, including the US/China trade tariff dispute and rising tensions between the US and Syria, they explained.
Rand weakness in April 2018 further supported rand hedges in the industrials composite on the JSE, according to Van Papendorp and Packirisamy.
According to their overview of the JSE, SA equities outperformed global shares and staged a solid performance in the first three weeks of April before trading sideways.
The JSE All-share Index increased by 5.4% in April due to a surge in resource shares. The JSE Resources Index increased by nearly 9% in April.
The first half of the month saw a rally in gold prices due to escalating geopolitical risks. There was also an uptick in platinum group metals prices.
Furthermore, a weaker rand supported gains in resource shares during the month.
The JSE Financials Index sustained losses during the month due to a rise in long bond yields negatively affecting locally-listed financial institutions.
The JSE Industrials Index was supported by decent retail sales figures and the highest consumer confidence print on record for the first quarter of 2018.
Rising US yields saw mounting pressure throughout emerging markets later in April, given an ongoing sell-off in riskier asset classes.
The JSE Mid-cap Index closed 3.5% higher in April 2018, while the JSE Small-cap Index drifted 1.2% weaker in the month.