Rand stumbles after economy contracts sharply

June 9, 2016 6:21 AM

Bonds also backtracked with yields on government paper edging back up, with the benchmark paper due in 2026 adding 2 basis points to 9.07 percent.

A street trader counts out change for a customer in Durban, September 8, 2015.

South Africa's rand retreated on Thursday as investor confidence was rattled by data showing the economy had contracted sharply in the first quarter, raising the risk of recession just as the country dodged downgrades to subinvestment grade.

By 0645 GMT the rand had slipped 0.29 percent to 14.7675 per dollar, wiping out gains that saw the unit climb to a five-week high after Fitch affirmed South Africa's investment grade credit rating and maintained its stable outlook.

Africa's most industrialised economy now looks on track for its first recession in seven years after economic output fell by 1.2 percent, according to Stats SA, as mining and agricultural sectors contracted sharply.

Traders, however, said the rand was likely to resume its rally as high-yielding emerging assets remained in favour with investors betting the United States would only raise lending rates later in the year.

"If local factors are mixed, global factors are certainly positive. The environment has been risk-on ever since (Federal Reserve Chair Janet) Yellen’s Monday speech," said currency strategist at Rand Merchant Bank John Cairns in a note.

Cairns said the weak growth data also suggested the South African Reserve Bank's tightening cycle, which has seen the bank lift rates by 200 basis points since 2014, was over.

On the bourse, the JSE securities exchange's Top-40 futures index was down 0.09 percent, pointing to a flat start when trade resumed at 0700 GMT.

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