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Rand pulls back from rally

Sep 11 2013 09:14 Reuters

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JOHANNESBURG (Reuters) - The rand weakened against the dollar on Wednesday, extending losses prompted by worse-than-expected current account data in the previous session and pulling yields on government debt higher.

The South African Reserve Bank (Ssrb) released poor current account data on Tuesday, showing a widening trade account the economy continued to import more than it exports.

The rand reacted by falling through R10/$r, and was down 0.55% at R10.0345 at 08:18 on Wednesday.

"Global sentiment remains very positive but the rand has been held back by the current account deficit and an unimpressive performance from its compatriot currencies," Rand Merchant Bank currency strategist John Cairns said.

The current account deficit is a sore point for the rand, making South Africa vulnerable to shifts in global investor sentiment since the account is funded by offshore inflows.

"It creates huge risks that the rand could blow out and restricts the unit's ability to stage a significant recovery. Our core view is for a mild recovery from these oversold levels," Cairns added.

With a week to the US Federal Reserve's next policy meeting, investors are likely to play it safe by staying away from risky assets such as the rand until they get clarity on whether it will start reducing its bond-buying programme.

Manufacturing data for July, due at 13:00, is likely to add further pressure on the rand if it underperforms market expectations.

Output was at 0.4% year-on-year in June from 2.1% in May, and fell 3% on a month-on-month basis.

Economists expect a pick-up to 1.5% year-on-year and 2.6% month-on-month, mainly because of an upbeat Purchasing Managers' Index (PMI) number.

The PMI, a leading indicator of manufacturing activity, rose in July and hit a six-year high in August.

Yields on government bonds were up four basis points to 8.365% on the benchmark 2026 bond.

Treasury will announce issuance plans for its weekly bond sale of fixed income debt at 11:00.


 

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