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Markets

South Africa's rand weakens but long-term bias positive

JOHANNESBURG: The rand weakened against the dollar on Wednesday, trading at its lowest for the session when markets reac
11 Jan 2012

south-africa-randJOHANNESBURG: The rand weakened against the dollar on Wednesday, trading at its lowest for the session when markets reacted to a warning about the fate of the euro, which saw investors sell risky assets such as the rand before rallying a touch.

The local currency was set to weaker from the open, having closed above key resistance at 8.1025 in New York trade on Tuesday.

Negative risk sentiment from the euro zone crisis sent the rand to 8.1670 against the dollar on Wednesday, losses worth 0.8 percent on the previous close.

The rand is a heavily traded emerging market currency, mostly because of how liquid it is, serving as a barometer for investor risk sentiment. It opened the year on a firm footing, looking to break through 8 rand resistance, but was dragged weaker by euro woes all the way to 8.25 so far this year.

Analysts say real money accounts with a long term view should take the rand back to firmer levels, but investors would have to be convinced about Europe sorting out its problems.

"If we don't have the worst ending of the euro zone situation, i.e. the risk-on comes back, the rand will rally. The house view here is that the euro is going to stay and things are going to improve over time," said Murat Toprak, a forex strategist at HSBC Bank.

A Reuters poll on the rand's prospects against the dollar sees the local unit coming out on top by year-end.

"But to reach that point, to reach the end of the year, I think we could have a bumpy road. We can easily have dollar/rand at much higher levels before it goes back," Toprak added.

The rand is likely to momentarily react to manufacturing data out on Thursday, before investors turn their attention to global developments again.

Government bonds gave up most of the previous session's gains, following the currency. Yields on the two benchmarks nudged down by half a basis point to 6.805 percent on the 2015 bond and 8.585 percent on the 2026 issue.

Copyright Reuters, 2012