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Rand weakens after weak GDP data

Johannesburg - The rand fell 1% against the dollar on Tuesday to its softest level in nearly a week, after the release of data showing the economy shrunk in the first quarter of the year, raising the spectre of a recession.

The data undermines the case for more interest rate hikes this year after the central bank last lifted its benchmark rate by 50 basis points in January.

The rand hit a session low of R10.4690/$, its weakest since May 21 according to Thomson Reuters data, and was at R10.46/$ by 15:37, representing a 1.02% fall from Monday's close in New York.

Gross domestic product shrank 0.6% quarter-on-quarter in the first three months of the year after a 3.8% increase in the final quarter of 2013, Statistics South Africa said.

GDP was dragged into negative territory by a 24.7% plunge in mining production and a 4.4% fall in factory output.

"Essentially the GDP move led to an extension of rand weakness that had started earlier on in the session already," said ETM market analyst Sean McCalgan.

He added that this went against the current global environment which favours riskier but high-yielding emerging market assets.

"We'll probably see this rand weakness slowly start to abate towards the end of the week," McCalgan said.

Government bonds edged higher after a fairly well supported weekly action, and yields inversely dipped lower.

The yield for the benchmark 2026 note was down 1.5 basis points at 8.175% while that for the 2015 instrument fell 2.5 basis point to 6.605%.

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