South Africa's rand hit by euro worries, halts steady gains

JOHANNESBURG: The rand was weaker against the dollar early on Tuesday, reacting to a resurgent political storm in the euro zone, which the South African currency has largely ignored for the last few months.

The euro, which has seen a rally this year, fell nearly one percent on the dollar on Monday and is on the defensive in this session because of political uncertainty in peripheral Europe.

A Spanish corruption scandal and worries about euro zone stability as former Italian prime minister Silvio Berlusconi regains political ground ahead of elections this month have driven investors into safe haven assets such as the dollar.

The current aversion to risk halted the rand's recovery from oversold levels in late January. The currency was in a steady strengthening trend for the past week, but has since hit a barrier.

"The firmer dollar environment stifled the rand's recovery in relation to the greenback," Michael Keenan, forex strategist at Absa Capital told investors in a note. "For today, participants should keep an eye on developments out of Europe."

The rand was down 0.3 percent on the dollar at 8.9385 by 0632 GMT.

Yields nudged lower on the government benchmark bonds, with the 2026 issue down one basis point to 7.355 percent, but off a one-week low hit on Friday.

Offshore buyers are building long bond positions in line with the rand's recovery after a sell-off two weeks ago.

Data from the Johannesburg Stock Exchange shows 1.8 billion rand ($202 million) worth of local debt went into foreign accounts last week, although a year-on-year comparison shows investors are not buying South African bonds as they did last year.

The 2015 yield dropped to 5.34 percent.

The Treasury will auction 2.1 billion rand of the 2026, 2031 and 2048 paper at 0900 GMT.