Johannesburg - The rand softened against the dollar on Tuesday and was seen under pressure as uncertainty over economic reforms by new governments in Italy and Greece kept investors on their toes.
Government bonds fell in line with the currency’s weakness and yields - that move inversely - rose to three-week highs.
Bonds were extending losses that started late last week when the Reserve Bank said the inflation outlook had deteriorated, dashing hopes of a possible rate cut.
Local stocks looked set for a weak opening, in line with global markets. The JSE’s Top 40 - (Tradeable) [JSE:J200] December futures contract was down 0.3% ahead of the start of trade at 07:00 GMT.
The rand was trading at R8.0350 against the dollar at 06:43 GMT, not far from Monday’s New York close of R8.0110.
“With all this uncertainty in Europe, the danger is that if there is going to be a risk-off scenario, it could go to R8.10/12,” said Jim Bryson, chief dealer at Rand Merchant Bank.
Support of the rand is at R8.06 but that level would be easily broken if there is more bad news from Europe.
The rand is a heavily traded global currency that is a barometer of risk sentiment. It has been closely following global developments, moving in line with swings in risk appetite while local developments have taken a back seat.
A reprieve due to new leadership in Italy and Greece was short-lived, with bonds in Italy and Spain coming under renewed selling pressure.
Standard Bank said in a note the rand will likely weaken towards R8.20 to the dollar over the next few weeks as events in Europe dominate global markets.
On fixed income, yields were at their highest since late October, ahead of a weekly debt auction.
The 2015 bond yield went up 8 basis points to 6.75% and that on the 2026 issue was up 7.5 basis points to 8.515%.