South Africa's rand firmer, market awaits reserves data

JOHANNESBURG: South Africa's rand gained ground on Tuesday after sliding to a five-year low a day earlier, and traders looked ahead to potentially market-moving reserves data on Wednesday.

The rand was at 10.6210 to the dollar at 1517 GMT, 0.2 percent firmer than Monday's New York close as disappointing U.S. data limited gains in the dollar. Earlier on Monday, the rand fell to 10.7360, its weakest level since November 2008.

South Africa's Reserve Bank is due to release December foreign exchange reserves data on Wednesday and the rand could suffer if the data disappoints.

Economists polled by Reuters forecast a decline in net gold and foreign exchange reserves to $45.33 billion in December, from $45.43 billion in November, while they expect gross reserves to fall to $49.093 billion from $49.348 billion.

"If it's quite a way away from the previous release ... if there's any surprise from that I suspect we could see some movement across the local currency," said one trader.

Despite the rand's muted reaction to the announcement in December that the U.S. Federal Reserve would begin tapering its bond purchases this month, it could still be vulnerable in the coming months, analysts at Absa Capital wrote in a quarterly economic outlook published on Tuesday.

Emerging market economies like South Africa have benefited from the Fed's quantitative easing programme but a reduction in the central bank's stimulus could reduce the appeal of these countries to foreign portfolio investors. South Africa's sizeable fiscal and current account deficits have also added to the pressure.

"The rand reacted calmly to the introduction of the taper, showing that the idea of the taper at least was priced in," Absa Capital said.

"However, a looming era of tighter liquidity and higher interest rates could still undermine capital inflows to South Africa, leaving the rand biased to weakness."

Moody's said on Monday that South Africa's rating was likely to remain in the Baa range for the foreseeable future, citing constraints such as high unemployment, income inequality and low educational attainment.

"If inadequately addressed, these could threaten longer-term economic and political stability," the ratings agency said in a credit opinion.

Government bonds were firmer on Tuesday, with the yield on the 2026 issue falling 6 basis points to 8.235 percent, while that on the 2015 paper was down 4 basis points at 6.19 percent.