Rand sags as global sentiment deteriorates over political concern in Italy

The rand was on the defensive on Tuesday morning, hurt by a deterioration in global sentiment, partly as a result of political limbo in Italy.

Italy, which is the third-biggest economy in the eurozone after France and Germany, is gripped by internal political strife, which played out negatively on the euro and stocks in particular.

As worries mounted over Italy, the dollar became an apparent default trade, knocking other currencies out of its path save for the yen, which has safe-haven characteristics.

The rand is sensitive to global market swings, which have tempered optimism created by President Cyril Ramaphosa earlier in 2018.

“Italy is fast approaching its Greek moment and is a risk we continue to watch due to its size and possible impact on the euro area,” Rand Merchant Bank Isaah Mhlanga said in an e-mailed note to clients.

The yield on the benchmark R186 bond also rose, reflecting the risk-off environment.

Foreigners have been net sellers of local government bonds over recent weeks, pushing up the yields in the process, which some analysts say could attract buying interest.

The yield on the R186 bond, which reflects the cost of government borrowing, was 8.50% in early trade from 8.43% at its last settlement.

At the same time, yields on the US government bonds continued to drop from their recent multimonth highs.

The yield on the US 10-year paper was at 2.81% in early trade, from 3.12% two weeks ago, making SA an attracive proposition from the yield perspective

At 10.24am, the rand was at R12.6048 to the dollar from R12.4648, R14.5664 to the euro from R14.4870 and R16.6720 to the pound from R16.5968.

The euro was at $1.1557 from $1.1624

Source: businesslive.co.za