Johannesburg - The rand firmed against the dollar on
Tuesday, tracking global markets that were cheered by signs of improvement in
Chinese manufacturing data, while government bonds improved from weaker levels
from the previous session.
The South African currency was up 0.4% to the dollar at
R8.4283 by 06:06 GMT, after hitting a near one month low on Monday as investors
globally sought cover in safe haven assets from Spain’s debt troubles.
It closed at R8.4630 in Monday’s session and dealers are
looking for the rand to test the R8.50 level later this week as the recovery
may be short-lived.
Risk appetite returned on Tuesday with China’s PMI at its
highest level in five months, but still looking shaky below the key 50 level on
the index, with the market looking for any good news to hold onto.
“Usually when we have such a vicious move on one day the
market does not have the momentum to carry it further the next,” said Warrick
Butler, Standard Bank’s rand trader.
“We have had two days, Friday and Monday, in a ’risk off’
environment and so my feeling is we will either have a day of consolidation or
a bit of profit-taking after such an extensive move.”
The rand began its retreat from firmer levels on Friday, a
day after the central bank surprisingly cut interest rates for the first time
in 19 months to 5%, reducing the attractiveness of the carry trade.
The South african currency is likely to weaken again later
this week, with the persisting debt crisis in Europe and slowing growth in
China depressing the domestic market. The two are South Africa’s biggest
trading partners.
The central bank’s leading indicator, measuring economic
sentiment, is due at 07:00 GMT. Analysts expect the weakening trend that has
been visible for months to have continued in May, and this is likely to drag on
the rand.
Yields on government bonds were slightly lower, with prices
recovering in line with the currency.
The three-year bond yield dropped 1.5 basis points to 5.425%
while the 14-year issue fell 2 basis points to 7.335%.
The government is looking to sell R2.1bn worth of paper
between the 2023, 2041 and 2048 bonds in the session. Results are due after
auction closes at 09:00 GMT.