Rand on the back foot against dollar

Johannesburg - The rand fell against the dollar in early Wednesday trade, showing a vulnerability that could see it test a three-year low of R8.71 set in June if the euro region continues to look shaky and fuel investor risk aversion.

Government bonds tracked the currency lower as foreigners sold some bonds, driving yields up for the third straight day.

The rand was at R8.5475 to the dollar at 06:30 GMT, 0.3% weaker than its R8.52 close in New York on Tuesday.

Analysts say the rand is likely to fall towards R8.71, a three-year low hit in early June. It hit a seven-week low of R8.5525 on Tuesday.

“In the near term, I am looking for a re-test of the June 1 peak at R8.7100 before an eventual break above that in due course,” said Kamran Sheikh, technical strategist at Informa Global Markets.

The rand, in line with other emerging market currencies, is suffering from a bout of risk aversion as Spain’s borrowing costs soar and the euro’s fourth-largest economy looks increasingly as though it may need a bailout. 

If safe haven buying persists, the rand could test R8.71 in the next couple of sessions.

“I think that can happen next week, or even towards the end of this week,” Sheikh said.

Government bonds took a breather as foreigners sold some debt in line with the broader risk-sell off and after a hard rally last week.

The yield on the three-year bond climbed two basis points to 5.505% while that on the 2021 issue rose 2.5 basis points to 6.785%.

Power utility Eskom will sell R300m of a 2028 inflation-linked bond at 09:00 GMT while the National Treasury announces issuance plans for next week at the same time.

The local market will turn attention to a speech by deputy governor Daniel Mminele at 11:00 GMT.

The market will be looking out for any clues on the central bank’s thinking on growth since the Reserve Bank and the World Bank have cut growth forecasts for this year, to 2.7% and 2.5% respectively.

The Treasury has also said growth will not meet its 2.7% projection.

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