Rand steadies, seen weaker medium term

folarin okunola

January 14, 2016 4:27 PM

Local stocks got off to a weak start, with the Top-40 index shedding 1.4 percent while the broader all-share was down 1.3 percent.

A five rand coin is displayed by a South African Reserve Bank employee in a file photo. REUTERS/ Juda Ngwenya

South Africa's rand was barely changed early on Thursday after a heavy sell-off at the start of the week, but the unit was still vulnerable to a myriad of structural problems facing the local economy, traders and analysts said.

At 0731 GMT the rand was trading at 16.5850 to the dollar, barely changed from Wednesday's close at 16.5800. The local unit was more than 7 percent firmer than the all-time low of 17.9950 it touched on Monday.

However, a weak domestic economic outlook, coupled with concerns about the global impact of slow growth in China, are likely to cap any significant rand gains.

"Although the South African currency is oversold, the country’s weak fundamentals do not warrant sustained recovery amid a risk-averse global environment at present,"NKC African Economics said in a note.

"As such, we expect the rand to remain under pressure in coming weeks and months."

The rand has weakened as much as 18 percent against the dollar since mid-December, after President Jacob Zuma's firing of the finance minister triggered selling by investors worried about future government policy.

In a speech in London this week, central bank deputy governor Daniel Mminele said the sharply weaker rand and a severe drought posed significant risks to the inflation outlook and had further complicated monetary policy.

In fixed income, the benchmark government instrument due in 2026 was yielding 4.5 basis points higher at 9.6 percent compared with where it ended Wednesday trade.

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