JOHANNESBURG, July 24 (Reuters) – South Africa’s rand fell
to its weakest against the dollar in more than seven weeks on
Tuesday and could attempt early June’s three-year lows in
nervous trade as a grim outlook for the euro zone keeps
investors largely averse to risky assets.
Yields rose as government bonds pulled back from recent
highs which had left them looking overbought, although local
debt still holds long-term appeal for investors looking for
better returns than the near-zero rates on offer in developed
countries.
With little news on the local front to drive the currency,
players were focused mainly on global developments while pricing
in the chance of further monetary easing after last week’s
unexpected rate cut as current growth forecasts look
unattainable.
The rand hit a session low of 8.5335 to the
greenback, the softest it has been since June 4, and was 0.61
percent weaker at 8.5150 by 1540 GMT compared with Monday’s
close at 8.4630.
“There’s not much happening domestically to impact the rand,
it has followed general EMEA currency moves which have all been
relatively small compared to yesterday,” said Christopher
Shiells, emerging market analyst at Informa Global Markets.
“We should see a risk-off grind lower as euro zone stresses
build.”
The rand took its cue from the euro, which fell against the
dollar and yen as weak euro zone data and a ratings watch on the
region’s strongest economies further dimmed the outlook for the
common currency.
Europe absorbs about 25 percent of South Africa’s exports,
and as a result the rand tends to closely track the euro.
“The pressure stays on. I think (dollar) bulls still have a
case to look for this year’s highs at 8.70 for dollar/rand. Euro
zone bond spreads have widened significantly and there is again
a feel of disorderly markets,” said Gabor Ambrus, emerging
market analyst at 4Cast.
Government bonds came under selling pressure and yields
recovered after hitting record lows in the wake of last week’s
surprise 50 basis point cut to 5.0 percent in the benchmark repo
rate.
The three-year benchmark was yielding 5.485
percent at Tuesday’s close, up 4.5 basis points on the day, and
the 14-year paper jumped 12.5 basis points to 7.48
percent.
(Reporting by Stella Mapenzauswa; editing by Ron Askew)
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