Rand buoyed by emerging market appetite

Johannesburg - The rand strengthened for a second day against the dollar on Wednesday, supported by increased emerging market risk appetite and after the economy avoided slipping into recession in the previous session.

The unit rallied to its strongest in six-days against the greenback, trading at R10.6300/$ by 15:45 GMT, 0.44% stronger than its New York close.

Economist Jana van Deventer at ETM Analytics said the rand, along with other emerging market currencies, was being driven mainly by global, rather than local, factors.

Trade deficit and credit demand data due on Friday could give greater direction to the rand, he said.

"We recommend caution ahead of those releases as they are bound to show that SA remains subject to large twin deficits," van Deventer said.

"I think this resilience could prove short-lived," he added.

A Reuters poll predicts the July trade balance will widen to a R3.2bn deficit, from R19m deficit in June.

Reports that talks between Russia and Ukraine offered little to suggest an end to hostilities ensured that a degree of global capital continued to flow out of eastern Europe and into Latin American and African markets.

Increasing expectations that the eurozone could effect quantitative easing to boost its flagging economies also added to a risk-on slant towards some emerging markets.

Most government bonds continued to benefit after South Africa narrowly avoided a technical recession after the economy grew 0.6% in the second quarter.

The yield on the long-dated 2026 paper slipped below eight percent for the first time since May 15, shedding 125 basis points to 7.98%.

"This is the result of stronger equity markets and yields coming-off globally, as well as South Africa catching up," bond trader Steve Arnold of Investec said.

However, the yield on the paper maturing next year added 4.5 basis to 6.545%.