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Johannesburg - South Africa’s rand fell more
than 1.3% against the dollar on Wednesday and was the worst performer in
a basket of 20 emerging market currencies, partly hit by S&P downgrading the
country’s outlook to negative from stable.
Government bonds extended the previous day’s losses, pushing yields
to week-long highs as investors adjust their long positions particularly at the
longer end of the curve after a poorly subscribed weekly auction on Wednesday.
The rand hit a two-day low of 7.7099/dollar and was at 7.7091 by
15:52 GMT, down 1.33% from Tuesday’s close at 7.6075.
It was trading at 7.6430 just before S&P released its statement
earlier, voicing concerns over structural problems such as a persistently high
unemployment rate and current account deficit.
“The dollar is much, much stronger across the board today so that
was obviously going to weaken the rand,” Bidvest Bank chief dealer Ion de
Vleeschauwer said.
“And then to add a bit more fuel to the fire, S&P downgrades
the outlook, and so it’s all a combination of factors that’s pushing the
currency a lot weaker than we opened in the morning.
“Today is a risk-off day again and we’ll probably see a bit more
exponential rand weakness across the crosses as well,” de Vleeschauwer added.
Government bonds also fell after the S&P news, with the yield
on the three year bond initially rising to 6.85 percent from 6.81 percent prior.
It came back to close at 6.82 percent, up three basis points from Tuesday.
The yield for the 14-year paper added five basis points to 8.48
percent.
“The auction yesterday wasn’t great so some players were stuck with
stock they didn’t want especially on the long end,” Renaissance Capital bond
trader Alvin Chawasema said of the sell-off.
“Yesterday and today we have seen a gradual curve steepening ...
The market now thinking there will be pressure on the back end of the curve.”
The market is looking to Thursday’s policy speech by Reserve Bank
Governor for pointers of when monetary tightening is likely to resume to curb
inflationary pressures.
