Global growth woes a drag down rand

Johannesburg - The rand traded a touch softer against the dollar on Monday and remains vulnerable to dim global economic prospects while retail sales numbers out later in the week will provide the latest clue on the domestic interest rate outlook.

By 06:49 GMT the rand was 0.42% weaker at R8.1045 to the dollar compared with Friday’s New York close at R8.0710.

“The market still seems wary of any negative news out of Europe,” Standard Bank trader Warrick Butler said.

“Given the lack of economic data out today and in the absence of any major news we will continue to play the R8.0600-R8.1100 narrow range.”

The rand has lost nearly 9% from this year’s highs around R7.40/dollar in February, battered by risk aversion as investors worry that debt problems affecting the eurozone could spread.

Government bonds were largely steady in early Monday trade, with the yields on the three-year and 14-year benchmarks each dipping just half a basis point to 5.63% and 7.405% respectively.

Lingering uncertainties over the eurozone crisis and the weak global growth outlook should keep rand bulls at bay, with R8.05 proving a hard level to breach, Absa Capital said in a note.

“This morning’s Japanese GDP data indicate the global economic recovery remains extremely fragile, which could restrict further risk appetite, unless the market believes (this) will actually prompt the authorities to inject further stimulus,” it said.

While the local market should largely follow global trends this week, South African retail sales data out on Wednesday could rekindle expectations of a domestic rate cut if it the data comes in worse than expected, weighing on the rand and pushing bond yields lower.