Filomena Scalise

Johannesburg - South Africa's rand fell to its weakest level against the dollar in more than three-and-a-half years, touching the key 9.0 level, with offshore investors exiting a currency already weakened by labour strife.

The decline in the very liquid South African market was the steepest in a basket of 20 emerging market currencies monitored by Reuters.

Portfolio funds find it easy to flow in and out of the country, meaning the rand tends to move sharply in times of market volatility.

The failure of international lenders to agree on much needed aid for Greece knocked broad risk appetite early on, but most other emerging markets soon recovered.

The rand was trading at 8.9825 to the dollar at 15h32 GMT on Wednesday after earlier reaching its weakest since April 2009. It closed at 8.83 on Tuesday.

Offshore selling of the rand and the currency's failure to test the 8.80 resistance level at the start of the week contributed to the decline, said Jim Bryson, a currency trader at Rand Merchant Bank.

“There's a big risk-off (sentiment) especially with the Greek decision (on aid) not being agreed upon,” he said. “There was good offshore interest to sell rand.”

Market talk was that a large offshore fund was unwinding positions.

“The rand always tends to exaggerate any moves,” said Bryson.

The South African currency has been on shaky ground after sliding sharply in October as investors dumped local assets on worries about the impact of a wave of illegal strikes, mainly in the key mining sector.

Fibonacci charts show that a breach of 9.00 would open up a test of the 9.2105 level which marks the 50 percent retracement level of the rand's 2008-2011 bear-run.

The sharp fall in the rand, coupled with data showing consumer inflation accelerated in October, all but removes the likelihood that the Reserve Bank will cut interest rates on Thursday as it worries about rising price pressures.

Government bonds were weaker after data released in the morning showed that South Africa's headline consumer inflation accelerated to 5.6 percent in October from 5.5 percent the previous month, exacerbated by the softer currency.

The yield on the 2015 bond climbed 4 basis points to 5.465 percent, while that on the 2026 paper was steady at 7.590 percent. - Reuters