* Lingering EM euphoria supports rand
* Bonds sold off in profit-taking
JOHANNESBURG Aug 10 (Reuters) – South Africa’s rand hovered
near the previous day’s 13-week high against the dollar on
Friday, riding on the remnants of emerging market euphoria over
expectations of further policy easing in leading economies.
Government bonds weakened, with yields continuing their
recent gradual trend higher after hitting historical lows in
July when dovish central bank comments on the domestic economic
and inflation outlook led the market to price in another rate
cut.
The local currency clawed its way back from a
session low of 8.17 against the greenback to 8.0850 by 1609 GMT,
just 0.1 percent softer than Thursday’s close at 8.08.
But the rand, which has come back significantly from a
three-year low of 8.71 in June, could run out of steam alongside
other emerging market currencies recently buoyed by
expectations of further stimulus measures from the European
Central Bank and the U.S. Federal Reserve.
“With nothing on the calendar in the way of likely global
policy action for the month of August, investors may well decide
to book profits on long EM currency positions, which could
create a short term correction,” said Roderick Ngotho, EMEA
forex strategist at RBS.
Government bonds sold off slightly on Friday, and the yield
on the three-year benchmark ended the day three basis
points higher at 5.635 percent while that for the longer-dated
14-year paper rose 2.5 basis points to 7.41 percent.
“I think this is a healthy profit taking after the strong
rally we had in the last two months,” said Di Luo, an interest
rate strategist at HSBC in London.
Local bonds hit record lows last month after the Reserve
Bank unexpectedly cut rates after keeping them on hold for 19
months and left the door open for further loosening as economic
growth remains lacklustre and inflation is seen sustainably
within a 3-6 percent target band.
(Reporting by Stella Mapenzauswa; editing by Ron Askew)
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