Rand is shaky despite relatively positive global backdrop

The rand was a bit shaky on Tuesday in midmorning trade, acting out of step with global markets, which were roundly positive.

Still, the local currency has held up relatively well for in July — it is on track to halt a fourth straight month of losses to the dollar.

Last week, the Reserve Bank held the interest rate unchanged, citing the volatility of the rand exchange rate as the key risk to the inflation outlook. The rand’s fortunes are closely tied to the global environment, which continues to be uncertain and fickle.

The local environment was not inspiring either, with analysts cautioning that Eskom’s mountainous debt posed a potential risk to the fiscus. This implies that in the worst-case scenario, the government may need bail out the power utility.

The bailout could undermine the government’s commitment to fiscal consolidation, which ratings agencies such as Moody’s and S&P Global Ratings require for the country to be rated as investment grade.

Local bonds were relatively mixed on the day, but fared much better in July compared to the second quarter, when foreigners in particular pulled out of funds due to poor sentiment.

At 10.46am the rand was at R13.4727 to the dollar from R13.4595, R15.7411 to the euro from R15.7356 and at R17.6604 to the pound from R17.6332. The euro was at $1.1684 from $1.692.

The yield on the benchmark R186 10-year note bid at 8.79% from 8.765%, while the R207 was at 7.485% from 7.48%.