Rand weaker vs dollar

Rand weaker vs dollar

2013-12-19 18:52

Johannesburg - The rand fell over 1% on Thursday against a dollar bolstered by the US Federal Reserve's decision to start paring back its bond-buying in January.

At 15:46 GMT, the rand was down 0.63% at R10.4200/4, coming back from a session low of R10.4400/$.

The Fed on Wednesday modestly trimmed the pace of its monthly asset purchases by $10bn to $75bn, saying the US economy was finally strong enough for it to start tapering.

The rand, sold heavily in the last few months partly on fears of a reduction in foreign portfolio flows to South Africa, weakened to a week-low on Thursday.

South Africa runs a current account deficit near 7% of GDP, which is usually funded by offshore inflows.

However analysts say tapering looks likely to be gradual and orderly, limiting market volatility and rand weakness.

"The rand strengthened to R10.25/$ on the FOMC tapering announcement, and then retraced to R10.37/$, and is likely to remain around the level of R10.30/$ for the rest of 2013," said Investec economist Annabel Bishop, forecasting a strengthening trend in the local unit over 2014.

The Fed also said interest rates would continue to remain low, which should prompt investors to remain in high-yielding emerging markets.

Liquidity should start to dry up as local traders who had been waiting for the Fed decision start their year-end holidays.

Yields on government bonds held firm, receiving some support from a Fitch ratings agency announcement late on Wednesday that affirmed South Africa's credit rating.

The yield on the benchmark 2026 bond gave up 6.5 basis points to 8.16% while the 2015 note dropped 5 basis points to 6.055%.