South African rand recovers slightly after lacklustre start to year

JOHANNESBURG (Reuters) -South Africa’s rand recovered slightly on Monday after a lacklustre start to the year, ahead of a key U.S. inflation report later in the week.

At 1519 GMT, the rand traded at 18.6200 against the dollar, 0.45% stronger than its previous close.

A reading on U.S. inflation due on Thursday is expected to provide some clarity on the Federal Reserve’s monetary policy outlook, which often determines direction for emerging market currencies like the rand.

Central bank data released on Monday showed that South Africa’s net foreign reserves rose to $56.900 billion at the end of December from $56.319 billion in November, while gross reserves increased to $62.518 billion in December from $61.721 billion the previous month.

Separately, a survey showed South African manufacturing activity accelerated in December as businesses benefited from fewer power cuts in the holiday period.

However, analysts warned that the local currency could come under more pressure this year after losing around 7.5% against the dollar in 2023, as domestic concerns take centre-stage.

Uncertainty surrounding power cuts and a national election later in the year is expected to weigh on the rand, Investec chief economist Annabel Bishop said in a research note.

“The uncertainty over the election and the nature of the coalition government, are also adding to the weak nature of the domestic currency,” Bishop said.

Monthly manufacturing data due later this week will give further clues about the health of the local economy.

On the Johannesburg Stock Exchange, the blue-chip Top-40 index closed 0.6% lower.

South Africa’s benchmark 2030 government bond was stronger, with the yield down 3 basis point to 9.835%.

(Reporting by Nellie Peyton and Bhargav Acharya; Editing by Mrigank Dhaniwala)