Rand firms on risk appetite, vulnerable to ratings downgrade fears

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May 25, 2016 6:24 PM

At 0700 GMT, the rand traded at 15.5100 versus the dollar, 0.94 percent firmer from its New York close on Tuesday.

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

South Africa's rand firmed to a one-week high against the dollar early on Wednesday on improved risk appetite, but analysts said the unit looked vulnerable to the possibility of a credit ratings downgrade and a U.S. Federal Reserve interest rate hike.

The currency was trading at its strongest levels since May 17, according to Thomson Reuters data.

"Locally the focus currently firmly on the impending announcements from Standard & Poor's and Fitch and the possibility of a Fed hike," Nedbank Capital analysts Mohammed Nalla and Reezwana Sumad said in a note.

"Yesterday’s U.S. new home sales have spurred hawkish sentiment even further and would suggest that the probability of a hike has increased significantly."

Investors are also cautions ahead of ratings agency S&P review due to be published on June 3, which could see the South Africa debt rating cut to junk.

Fitch was also expected to publish its review next month.

On the stock market, the Top-40 index was up 0.68 percent, while the broader all-share rose 0.56 percent in early trade.

In fixed income, the yield for the benchmark instrument due in 2026 was down 5.5 basis points to 9.395 percent.

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