Johannesburg - South Africa's rand fell to a fresh four-year low against the dollar on Wednesday after the Reserve Bank reiterated that it does not target a level for the rand exchange rate.
Government bonds also weakened after data released earlier in the day showed a bigger than expected rise in February consumer inflation.
The rand was at 9.2910 to the dollar at 18h04 GMT, down 0.4 percent from its close in New York on Tuesday, after hitting a session low of 9.3169, its weakest since April 2009.
The Reserve Bank left its repo rate unchanged at 5.0 percent on Thursday and Governor Gill Marcus said she expected the exchange rate to remain “volatile and subject to overshooting”.
However, she made clear the bank would not step in to stem the rand's nine-percent fall against the dollar this year, surprising some in the market who had been expecting a more aggressive stance.
The next resistance level for the rand is around 9.3400 and a move beyond this could push the currency to 9.5000 or higher, traders say.
“The currency is looking a bit dangerous at these sorts of levels,” one trader said. “If we go to the mid-30s we might see the rand moving much, much higher.”
Government bond yields rose after Statistics South Africa said headline consumer inflation accelerated to 5.9 percent year-on-year in February, from 5.4 percent in January .
Economists had expected inflation to come in at 5.6 percent year-on-year.
The yield on the 2026 bond rose 6 basis points to 7.5 percent, while that on the 2015 issue was 10 basis points higher at 5.535 percent.
The weakening currency and declining foreign inflows are likely to weigh on the bond market in the near future, the trader said.
“If you look at the emphasis that Gill put on the inflationary risk combined with the fact that foreign buying has been dwindling... short term I'm not too confident bonds will rally from here,” he said. - Reuters