Rand slips in cautious trade

The rand weakened early on Tuesday in a broad emerging market retreat as investors reassessed expectations that the US central bank would maintain its quantitative easing program at the current pace.

By 0650 GMT, the rand weakened 0.18% to R15.02 per dollar, losing ground overnight after a recovery rally that took it to a session-best R14.90 on Monday.

Soaring US bond yields, drawing yield-searching investors back into the greenback, led to a rout of risk assets last week and dragged the rand to one-month lows.

While investors marched back to developed market bonds, indications by the US Federal Reserve that it will tolerate a higher yield curve and keep monetary taps open has lifted risk demand.

“Our base case for strong global growth and rising commodity prices should be supportive of EM FX generally, and with broader commodities outperforming, the ZAR continues to be front of mind in benchmarking EM currencies against global reflation scenarios,” said analysts at London-based MUFG Securities.

“While the case for ZAR longs is global in tone, the domestic backdrop for currency strength is more mixed.”

An increase in new sales and business activity pushed up seasonally-adjusted Absa Purchasing Managers’ Index (PMI).

South Africa’s budget last week struck a balanced note on fiscal consolidation and growth, but a lot depends on wage negotiations with public sector labour unions.

Unions on Monday said they wanted a general salary rise of consumer inflation plus 4% for all workers. Finance Minister Tito Mboweni has pledged to freeze public sector wages for the next three years.