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Johannesburg - The rand weakened more than 2.3% against the dollar on Wednesday, ranking among the worst performers in a basket of emerging market currencies as global uncertainty kept investors jittery about high risk assets.
Government bonds rallied during Johannesburg afternoon trade - although they later retreated - as market players priced in a slight chance of an interest rate cut due to a bleak outlook for domestic growth, which is heavily reliant on global demand.
Stocks gave up most of their earlier gains after a plunge in European banks helped trigger a sell-off in local lenders such as Nedbank . Resource stocks, however, held on to their gains despite the turn around in fortunes.
The rand plumbed a session low of R7.28/$ and was at R7.359/$ in early evening trade, down 1.8% on Tuesday’s close in New York. This left it in the bottom six of 20 emerging market currencies monitored by Reuters.
The rand pulled back sharply from its strongest level of R7.0750/$ earlier, which had been triggered by comments from the US Federal Reserve on Tuesday that it would hold interest rates near zero for at least two more years.
“During the morning, the rand was stronger as the market digested the Fed’s comments, which boosted sentiment. However there are still too many risks from the global environment and uncertainty is broad-based,” said Anisha Arora, an emerging markets analyst at 4CAST.
“In this situation preference for the dollar increases, hence rand appetite was dented, accordingly seen in other emerging crosses.”
While the dollar remains the currency of choice, the rand could come under enough pressure to test the 7.30 level, traders said, predicting choppy trade for the next few sessions while investors try to make sense of global markets.
Government bonds soared earlier in the day, with yields falling as much as 20 basis points to levels last seen around November 2010.
Yields later recovered, however, with the four-year bond closing 1 basis point lower on the day at 6.91% while the yield on the 2026 bond added 3 basis points to 8.255%.
Traders said the market was now pricing in a small chance of an interest rate cut as the domestic economic outlook turned dim on financial markets turmoil and gloom about the global economy.
“We have taken rate hikes off the table for 2011,” said one Johannesburg-based bank, which previously said it expected a rate increase in November 2011 after a cumulative 650 basis points of cuts in the two years to November 2010.
The Reserve Bank has left rates unchanged at four policy meetings so far this year.
Government bonds rallied during Johannesburg afternoon trade - although they later retreated - as market players priced in a slight chance of an interest rate cut due to a bleak outlook for domestic growth, which is heavily reliant on global demand.
Stocks gave up most of their earlier gains after a plunge in European banks helped trigger a sell-off in local lenders such as Nedbank . Resource stocks, however, held on to their gains despite the turn around in fortunes.
The rand plumbed a session low of R7.28/$ and was at R7.359/$ in early evening trade, down 1.8% on Tuesday’s close in New York. This left it in the bottom six of 20 emerging market currencies monitored by Reuters.
The rand pulled back sharply from its strongest level of R7.0750/$ earlier, which had been triggered by comments from the US Federal Reserve on Tuesday that it would hold interest rates near zero for at least two more years.
“During the morning, the rand was stronger as the market digested the Fed’s comments, which boosted sentiment. However there are still too many risks from the global environment and uncertainty is broad-based,” said Anisha Arora, an emerging markets analyst at 4CAST.
“In this situation preference for the dollar increases, hence rand appetite was dented, accordingly seen in other emerging crosses.”
While the dollar remains the currency of choice, the rand could come under enough pressure to test the 7.30 level, traders said, predicting choppy trade for the next few sessions while investors try to make sense of global markets.
Government bonds soared earlier in the day, with yields falling as much as 20 basis points to levels last seen around November 2010.
Yields later recovered, however, with the four-year bond closing 1 basis point lower on the day at 6.91% while the yield on the 2026 bond added 3 basis points to 8.255%.
Traders said the market was now pricing in a small chance of an interest rate cut as the domestic economic outlook turned dim on financial markets turmoil and gloom about the global economy.
“We have taken rate hikes off the table for 2011,” said one Johannesburg-based bank, which previously said it expected a rate increase in November 2011 after a cumulative 650 basis points of cuts in the two years to November 2010.
The Reserve Bank has left rates unchanged at four policy meetings so far this year.
