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Rand firmer, but will struggle to sustain gains

Jan 27 2016 09:26

Johannesburg - The rand was a tad firmer against the dollar on Wednesday, in a market anticipating an interest rate hike as the Reserve Bank fights inflation pressures.

But analysts said the rand was not likely to gain on a sustainable basis, being at the mercy of general risk aversion as investors worry about the impact of slowing growth in China.

At 08:51 the rand was trading at R16.4050/$, up 0.09% compared with where it ended Tuesday trade.

Just one month into 2016, the local currency has already weakened nearly 6% against the greenback, dragged down by concerns over sluggish domestic growth and a slowdown in the world's second-biggest economy.

"Aside from domestic factors, the rand will continue to be vulnerable until markets in China calm down," NKC African Economics said in a note outlining short-term risks to the domestic currency.

"Higher local interest rates will not remedy this situation even if the central bank hikes significantly in the first quarter of 2016 as the rand remains at the mercy of broader emerging market sentiment."

South African stocks looked likely to start slightly firmer, with the Top 40 futures index ALSIH6 up 0.36% prior to the start of trade.

On the debt market, the yield for the 2026 benchmark government bond eased 2 basis points to 9.635%.

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rand  |  markets  |  currencies

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