Negative sentiment knocks rand

Jan 23 2013 15:10

Johannesburg - The rand fell through the psychologically key R9.0 level against the dollar on Wednesday as increasing negative sentiment towards South Africa's economy triggered stop losses on the currency.

Violent labour protests in South Africa have hit invest sentiment since late last year, triggering three credit rating downgrades.

The rand lost over 1.6% to R9.0001/dollar, its weakest in over nine weeks. Its next support level is the three-and-a-half year low of R9.01 hit in November.

"We've seen some stop-loss activity, so people are stopping on long rand positions on a technical breakthrough of the R8.88-R8.89 level," said Duncan Howes, a trader at Absa Capital.

Light liquidity conditions and global demand for dollars added to the rand's woes, although the currency is unlikely to weaken further on Wednesday as other emerging market units had either stabilised or strengthened, Howes said.

The rand also has strong support at the R9 level, and it had pulled back to R8.96 by 12:29 GMT on Wednesday but remained the biggest loser against the dollar in a basket of 20 emerging market currencies tracked by Reuters.

Analysts say the rand is in over-sold territory against the euro but any dips will be restricted by negative sentiment towards South Africa.

Euro/rand hit R12, before retreating to R11.95.

Government bond yields were up, with the long end of the yield curve rising the most. The benchmark 2026 yield gained 7 basis points to a two-week high of 7.32%, while the 2048 yield climbed 9 basis points to 8.39%.

"It's a very bearish view on South Africa all round. Today has seen a somewhat snowball effect of the recent mood, which has been to sell the rand against EM and the majors, and bonds are taking the brunt of this too," said Anisha Arora of 4Cast.

Headline inflation data released earlier in the session showed CPI accelerated to 5.7% in December, its fastest pace since May, causing a further sell-off in the bond market as investors interpreted the high print to mean inflation may push out of the Reserve Bank's (Sarb) 3%-6% target range.

After three days of deliberations on monetary policy, the Bank will announce a decision on the repo rate on Thursday.

Economists polled by Reuters expect the Sarb will hold rates steady at 40-year lows to support struggling economic growth.

"Bonds were already weaker after CPI basically confirmed that the Sarb will not move rates in the short- to medium-term horizon and the poor forex outlook has spread to local assets, igniting this sell off further," Arora said. 

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bonds  |  rand  |  sa economy  |  dollar  |  markets



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