Rand firmer, but will struggle to sustain gains

chika ebuzor

January 27, 2016 8:37 AM

Analysts said the rand was not likely to gain on a sustainable basis, being at the mercy of general risk aversion as investors worry about the impact of slowing growth in China.

South African rand notes in a file photo. REUTERS/Siphiwe Sibeko

South Africa's rand was a tad firmer against the dollar on Wednesday, in a market anticipating an interest rate hike as the central bank fights inflation pressures.

But analysts said the rand was not likely to gain on a sustainable basis, being at the mercy of general risk aversion as investors worry about the impact of slowing growth in China.

At 0651 GMT the rand was trading at 16.4050 versus the dollar, up 0.09 percent compared with where it ended Tuesday trade.

Just one month into 2016, the local currency has already weakened nearly 6 percent against the greenback, dragged down by concerns over sluggish domestic growth and a slowdown in the world's second biggest economy.

"Aside from domestic factors, the rand will continue to be vulnerable until markets in China calm down," NKC African Economics said in a note outlining short-term risks to the domestic currency.

"Higher local interest rates will not remedy this situation even if the central bank hikes significantly in the first quarter of 2016 as the rand remains at the mercy of broader emerging market sentiment."

South African stocks looked likely to start slightly firmer, with the Top-40 futures index ALSIH6 up 0.36 percent prior to the start of trade at 0700 GMT.

On the debt market, the yield for the 2026 benchmark government bond eased 2 basis points to 9.635 percent.

chika ebuzor