Rand firms as investors trim long dollar positions

South Africa's rand gained against the dollar early on Tuesday and could continue to benefit from investors culling their long dollar positions after a recent heavy sell-off.

South African bank notes featuring images of former South African President Nelson Mandela (R) are displayed next to the American dollar notes in this photo illustration in Johannesburg August 13 2014.   REUTERS/Siphiwe Sibeko

The JSE securities exchange's Top-40 futures index was up 1.1 percent, suggesting the local bourse would open more than 470 points higher at 0700 GMT.

At 0755 GMT the rand was at 16.7400 to the dollar, up 0.65 percent from Tuesday's close at 16.8500.

"There does seem to be an overhang of long dollar positions,"Standard Bank trader Warrick Butler said. "On a short term basis there is minor trend line support around 16.6800."

The local currency has fallen more than 8 percent against the dollar this year, weighed down by concerns over the outlook for the sickly local economy as well as slowing growth in China, a key importer of South African commodities.

Despite the lethargy in the South African economy, traders and analysts are pricing in the chance of a 25 or 50 basis point rate hike when the central bank holds its first policy meeting of the year next week, against the backdrop of rising inflation.

In fixed income, the yield for the benchmark government instrument due in 2026 was down 6 basis points at 9.77 percent in early trade.

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