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Rand pressured by dollar

Johannesburg - South Africa's rand was weaker against the dollar on Tuesday, hit by a fresh wave of risk aversion after North Korea raised global political tension by testing a nuclear bomb.

Emerging market currencies were pressured in early trading by Pyongyang's move, which raised security concerns for north Asia - a region responsible for about one-sixth of the global economy.

Photo: Filomena Scalise

The rand failed to recover from its initial weakness as the jitters added to an already weak domestic economic outlook.

At 15h45 GMT, the rand was down 0.4 percent at 8.9475 to the dollar, after hitting 8.9910 earlier in the session.

“The weakness was mainly due, initially, to North Korea. What we've seen is a lot more people scurrying for safety, mainly running into gold and the US dollar,” said Paul Chakaduka, a dealer at Global Trader.

The South African currency was the weakest performer against the dollar in a basket of emerging market currencies tracked by Reuters.

The rand is a high beta currency, making it highly volatile compared to the rest of the market.

A recovery is likely on Wednesday as the unit has been hovering near a key support level at 9 rand to the dollar, traders said.

“If we don't get through nine rand in the short term, we should see the rand strengthening and coming back towards the 8.88 level,” Chakaduka said.

However, domestic economic factors including a wide current account deficit, high unemployment and labour strife in the crucial mining sector will limit the recovery.

Yields on government bonds rose for the third straight day as prices fell along with a weaker rand.

The 2015 and 2026 benchmark yields were up 2.5 basis points each to 5.34 percent and 7.33 percent respectively. - Reuters

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