South Africa’s rand was on the mend on Wednesday after it was rocked in early trade by a series of explosions in Soweto that briefly dented sentiment.
”This morning’s move was well overdone in thin trade and a complete overreaction. We are back to more realistic levels now,” said one dealer at a major local bank.
At 0820 GMT, the rand was trading at 10.1450/dollar after earlier skidding to 10.27, its weakest level in just over a week. It closed on Tuesday at 10.07/dollar. Dealers said it looked set to trade between 10.10 and 10.20/dollar on the day though a break towards 10.0/dollar was not ruled out, given its volatility.
The rand, one of the best performing currencies of 2002, had briefly broken below 10.0/dollar on Tuesday for the first time in over three months.
The rally has been fuelled partly by an appetite for the attractive yields offered by steep domestic interest rates.
The rand earlier on Wednesday buckled on news that nine explosions had rocked South Africa’s Soweto township, killing one woman, while a tenth explosive device was defused.
Bond yields fell rapidly after climbing earlier in sympathy with the weaker rand.
The yield on the short-dated R150 was back to its closing level of 11,99% after soaring to 12,16% earlier. The longer-dated R153 was also back to its late Tuesday level of 11,59% after hitting 11,73%.
More gains are seen after data on Tuesday showed slower-than-expected growth in M3 money supply and private credit extension, which has raised hopes that the central bank may refrain from hiking interest rates for a fifth time this year to contain spiralling inflation.
South Africa’s mid-term budget plans, unveiled on Tuesday, have also taken the heat off the central bank to raise interest rates again this year.
The government’s decision to relax its inflation target for 2004 after an unwarranted surge in domestic prices soothed concerns that the central bank would hike its key repo at its next policy meeting on November 27-28. – Reuters