Johannesburg - The rand hit a fresh three-week high against the dollar and bonds rose to their highest in three months on Thursday, as investors around the globe cheered Washington's debt deal.
South Africa's currency traded as strong as 9.8050 to the dollar in the afternoon, looking to break through 9.80 resistance.
The rand had closed at 9.8555 in New York on Wednesday.
Analysts said a break through 9.80 could trigger stop-losses all the way to the 9.55-9.60 rand area.
However, the rand rally may not last as the local unit is vulnerable to global shocks, given the yawning current account gap, chronic unemployment and an unstable labour environment that has seen strikes in key industries this year.
The currency is likely to remain volatile, Lars Christensen, chief analyst at Danske Bank, said in a note.
“We are generally bearish on the rand and, although it gets support from the rebound in commodities currently, we still consider it to be over-valued on a longer term horizon,” he said.
When the global relief rally abates, the rand is expected to come under pressure from key data such as inflation, trade and jobless numbers due towards month end, likely to highlight the vulnerability of Africa's largest economy.
South African government bonds rallied in tandem with the rand, with the yield on the benchmark 2026 bond at a three-month low at 7.785 percent.
“With the can kicked further down the road Stateside, all is forgiven, for now, and debt markets both in the US and South Africa rallied. Both the rand and local bonds benefited from a risk-on trade, and the latter rallied by 10 points as measured by the benchmark R186,” said a Johannesburg-based bond dealer. - Reuters