The rand weakened early on Thursday, giving up the previous session’s gains as investors short on the local and other emerging currencies were squeezed out of those positions by a swift, albeit brief turnaround in the Turkish lira.
Stocks weakened, led lower by banking shares, as global appetite for emerging markets dwindled.
At 1705 GMT the rand was 0.88% weaker at 12.55 per dollar, having rallied to 12.40 on Wednesday, spurred by a broad emerging market relief rally after Turkey’s central bank said it would act to stem a selloff in the lira.
“With yesterday’s rand rally, what we were seeing was a bit of volume flushing the market,” said currency strategist at Peregrine Treasury Solutions Bianca Botes.
The relief offered by the Turkish lira stoked a short squeeze as the 12.40/$ level, used as a stop-loss mark by some investors, triggering a brief wave of selling as rand bears wary of a run to 12.20 closed positions.
The rand traded as firm as 12.18 on Monday, its strongest in three weeks, but quickly lost ground to geopolitical worries over Iran as well as the Israeli-Palestinian conflict, and general risk aversion in anticipation of rate hikes by the US central bank.
“We saw the rand rally all the way down to around 12.20 and, in my opinion, that’s a very unrealistic level, considering where the country is from a global and a local perspective,” Botes said.
The rand has also been undermined by a large exit from dollar-funded carry trades, with high-yield currencies such as the Mexican peso and the Russian rouble also affected.
Bonds were weaker, with the benchmark paper due in 2026 yielding 8.51%, 4.5 basis points higher.
On the bourse, the benchmark Top 40 Index closed down 0.83% at 51 675 points while the All Share Index fell 0.75% to 58 184 points.
Banking shares were down 3.18%, with Capitec down 2.61% to R826.73 and Standard Bank 3.66% weaker at R203.02.
“Foreign investors have been a little bit less favourable to South African shares for the last week or so,” said Cratos Capital equities trader Greg Davies.