Rand weaker on global risk aversion

Johannesburg - The rand weakened against the dollar on Tuesday and bonds followed suit as investors dumped riskier assets, partly due to worries about the impact of protests in North Africa.

Libyan unrest has contributed to worries that oil production may be reduced and US oil futures climbed to two-and-a-half year highs.

The rand was hovering around key support at R7.21, which, if breached, will open up R7.35, a level last seen on February 2.

The rand has been trading higher than its 200-day moving average since late January, its weaker tone exacerbated by increased central bank buying of dollars to shore up its reserves, dealers said.

At 06:38 GMT, the rand was trading at R7.19, 0.56%weaker than Monday's close of R7.15.

"There's just so much uncertainty in the world right now," said RMB trader Jim Bryson.

"While Libya is not a big oil producer, the whole thing has put pressure on commodity currencies. So the bottom line is that risk is off and once the rand breaches R7.21 it will go weaker. Failure to do so will mean it stays in ranges."

Fourth quarter South African growth numbers are due at 09:30 GMT, with economists expecting GDP to rise to 4.2% quarter-on-quarter on a seasonally adjusted and annualised basis compared with 2.6% in the third quarter.

Government bonds weakened in line with the rand. The yield on the 2015 issue R157 went up eight basis points to 7.765% and that on the 2026 R186 went up 8.5 basis points to 8.745%.

"The GDP data might be sidelined in the context of what is happening in Libya," said Trevor Barsdorf, analyst at ETM. "But if GDP is stronger than expected it could lend support to the argument for an interest rate hike."

There's also slight nervousness before Finance Minister Pravin Gordhan's budget speech on Wednesday.

Although the market is expecting him to stick to his plans of narrowing the budget deficit, local government elections are due in a few months and higher spending to create jobs cannot be ruled out.







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