LUKE BAKER, Johannesburg | Friday 5.30pm
THE rand weakened sharply on Friday, falling to its lowest level in 17 months as strong demand for the dollar battered the currency and forced those caught holding rand to ditch their positions.
Traders said the move, which saw the rand slide from R6,32 early in the session to R6,40 at one point, was exaggerated by a thin market ahead of the weekend. But it still took the Government bonds, which have enjoyed solid buying on the back of encouraging economic fundamentals, stood their ground. The rand has suffered all week after several big gold producers announced they are buying out their bullion hedges — transactions which mean selling rand for dollars in order to buy back gold sold forward.
That has helped the bullion price rise, but dented the rand, which has lost nearly 3% since Monday.
“The rising price of gold appears to have washed out a lot of the hedging positions. Rand weakness is clearly not based on fundamentals, but the short-term risk is for it to weaken further,” said Bank of America’s Juliet Sampson in London.” Dollar strength against the euro and other major currencies also weighed.
The rand’s decline will be little comfort for the central bank which has been trying to unwind a large forward foreign currency position. To do that it needs to buy dollars, but must also try to maintain the stability of the rand.
Most economists had forecast that sound fundamentals would keep the rand fairly stable this year — to end around 6.35 to the dollar — which would allow the Reserve Bank to unwind much of the forward book, perceived as the currency’s Achilles’ heel in the past.