South African rand softens as markets absorb central bank rate hike

South African Rand coins are seen in this illustration picture taken October 28, 2020. REUTERS

JOHANNESBURG, Sept 25 (Reuters) – The South African rand softened in early trade on Friday as markets digested the central ​bank’s interest rate hike, while growing expectations that ‌the Federal Reserve will keep interest rates elevated weighed on the risk-sensitive currency.

• At 0610 GMT, the rand traded at ​16.40 against the dollar , about 0.3% down from ​its previous close.
• The South African Reserve Bank raised its ⁠key interest rate by 25 basis points to ​7.25%, saying the Iran war had triggered “large and sustained” ​price shocks and that tighter policy was needed to prevent higher inflation from becoming entrenched
• Governor Lesetja Kganyago said it was crucial ​for inflation to return to the central bank’s ​3% target as recent fuel-price pressures fade
• As a net fuel importer, ‌South ⁠Africa is heavily exposed to swings in global energy prices
• The dollar was set for its first back-to-back weekly gains in more than three months, as surging Treasury ​yields and ​mounting bets ⁠on further Fed’s rate hikes kept the greenback near multi-month peaks.
• Next week, domestic investors ​will track a raft of month-end economic ​data, ⁠including money supply, private sector credit trade balance and budget balance  as well as producer inflation and second-quarter ⁠formal ​sector employment figures
• South Africa’s benchmark ​2035 government bond was steady in early deals, with the yield unchanged ​at 8.72%.

Reporting by Nilutpal Timsina; editing by Lincoln Feast.