The rand staged a comeback on Wednesday morning as the euro and EU stocks stabilised, suggesting that investors perceived Tuesday’s sell-off as overdone, at least in the short term.
The political crisis in Italy has shaken global markets over the last 24 hours, though not to the same degree as experienced between 2010 and 2012 at the peak of the eurozone sovereign debt crisis.
The key concern is that anti-establishment parties in Italy could destabilise the eurozone as a bloc, akin to Brexit.
The political limbo could lead to new elections, after the coalition government failed to materialise.
“With the situation in Italy being uncertain we can expect two-way risks as new headlines enter the market,” currency dealer at TreasuryOne Andre Botha said.
“This will increase the volatility in the market, and we could see some violent swings … depending on the tone of the headlines.” As fears over Italy mounted, investors sought cover in US treasury bonds, thus pushing its yields even lower.
The yield on the benchmark US treasury was at 2.83% in early trade, from 3.12% two weeks ago.
At the same time, the yield on SA’s R186 bond was at 8.53% in early trade from 8.52% at its last settlement.
At 10.17am, the rand was at R12.5720 to the dollar from R12.6935, R14.5851 to the euro from R14.6521 and R16.6998 to the pound from R16.8205.
The euro was at $1.1601 from $1.1539.