Rand weakens further as dollar gains on US bond spike

The rand was weaker against the dollar on Thursday afternoon, but off its worst intraday levels, as the rampant dollar gave back some of its earlier gains against the euro.

The euro weakened below $1.15, its softest level in two months, as US bond yields rose. The US 10-year peaked at 3.2245%, its highest level since July 2011, benefiting the dollar.

“The spike in US treasury yields has driven demand for the greenback, which is back near last month’s peak, mostly, it would appear, at the expense of emerging-market currencies — again — and the yen,” Oanda analyst Craig Erlam said. 

Investor confidence in both the health of the US economy and the US Federal Reserve’s steadfastness in its forward guidance received a further boost on Wednesday, when the central bank’s chair, Jerome Powell, said that the nation’s economy was experiencing “a remarkably positive set of economic circumstances”. He added that he saw little risk of the current economic expansion being knocked off course.

The news earlier in the week that Canada had joined the US and Mexico in successfully renegotiating the North American Free Trade Agreement had softened some of the global trade anxieties of recent months, Dow Jones Newswires reported.

SA is not the only country affected by renewed negative emerging-market sentiment, with India’s rupee coming under sustained pressure, which might force its central bank to hike interest rates. 

While the rand had looked set to improve to under R14 to the dollar just last week, the stronger dollar has since relentlessly driven the rand weaker, with the local political situation not helping.

Finance minister Nhlanhla Nene’s testimony at the state capture commission that he had had numerous meetings with members of the Gupta family, underscored the notion that even those previously considered squeaky clean could be affected by associations of the past, PSG Wealth portfolio manager Schalk Louw said.

Louw said Nene had previously been regarded as a rock of incorruptibility in a sea of miscreants. “That seems to have been tainted a bit, which has affected the rand.”

At 3pm the rand was at R14.6621 to the dollar from R14.6363, after earlier weakening to R14.7759. It was at R16.8732 to the euro from R16.7961 and at R19.0605 to the pound from R18.9397.

The euro was at $1.1508 from $1.1475.

The benchmark R186 government bond was bid at 9.18% from 9.08%.

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