Rand backtracks against firmer dollar, stocks flat

February 16, 2016 7:10 AM

Despite gaining more than 3 percent against the dollar in the past two weeks, analysts expect the rand's rally to run into obstacles in the run up to Finance Minister Pravin Gordhan's budget speech next Wednesday.

A worker walks past an electronic board displaying movements in major indices, at the Johannesburg Stock Exchange in Sandton, February 12, 2015. REUTERS/Siphiwe Sibeko

South Africa's rand was weaker in early trade on Tuesday, giving up some of the gains triggered by the easing of global risk aversion driven by higher oil prices.

Stocks were set to open flat at 0700 GMT, with the JSE securities exchange's Top-40 futures index inching up 0.16 percent.

By 0645 GMT the rand had slipped 0.12 percent to 15.7360 per dollar, wilting against a greenback boosted by a return of faith in the United States' economic recovery that investors bet will lead to higher interest rates there in 2016.

Bonds were firmer as yields fell, with the benchmark government issue due in 2026 shedding 2.5 basis points to 9.135 percent.

"Mr Gordhan will likely present an extremely austere Budget next week," analysts at NKC African Economics said.

"He needs to send a strong signal to rating agencies and foreign investors that South Africa is committed to fiscal consolidation in wake of December's finance minister debacle."

Ratings firms Fitch and Standard and Poor's both have South Africa's debt one level above subinvestment, while fellow agency Moody's rates the country two levels above junk, but with a 'negative' outlook.