South African rand falls near 4-year low vs dollar

JOHANNESBURG: South Africa's rand weakened near a 4-year low against the dollar, driving short-dated government bond yields higher amid global emerging market losses on Tuesday.

The rand fell 1 percent to 10.4410/dollar compared with its close in New York on Monday, just short of a 4-year trough hit last week.

Yields on the short-end of the government curve gave up 9.5 basis points to 6.475 percent, while the long end received support from fund managers, dealers said.

The best quarterly GDP figures in a year did not prevent the rand weakening in line with currencies in other emerging markets as uncertainty over Western military action in Syria fuelled a further flight out of high-yielding markets.

"It has been an emerging markets rout today but our bond market has held up pretty well. Gold has rallied quite a bit and that has also helped to keep the rand below last week's lows," said Warrick Butler, a currency trader with Standard Bank.

The rand fell to 10.4450 last week Thursday, pressured by domestic labour strikes and a global sell-off of emerging markets as investors anticipate the US Federal Reserve will reduce its bond-buying programme.

GDP figures for the second quarter showed the economy grew at a slower-than-expected pace of 3 percent. Although this was the highest quarterly gain for a year, economists said the data did not reflect a fundamental and sustained improvement in South Africa's economic conditions.

South Africa is made more vulnerable to selling by yawning deficits in its budget and current accounts.

Finance Minister Pravin Gordhan sought to calm investor jitters on Tuesday, saying South Africa could effectively manage its deficits, but emerging markets had to grow their economies to avoid shocks.

The Treasury sold 2.35 billion rand in 2031, 2037 and 2048 bonds earlier in a solid auction earlier in the session.

Yields on the long end of the curve dropped 5.5 basis points at 9.385 percent on the 2041 bond.

"The very successful auction has left the curve slightly flatter today and so the long end of the bond curve is shrugging off the weaker currency," said Steve Arnold, a bond trader at Investec.