Rand back to its volatile ways as it slides to four-month low

The rand slid to a four-month low to the dollar on Wednesday morning‚ further reducing the scope for the Reserve Bank to ease monetary policy in the coming months.

The local currency slid to session lows of 12.45/$‚ reasserting its status as one of the most volatile currencies. Just a week ago‚ the rand was at R11.91 to the dollar.

The renewed volatility came as US government bond rates continued to dominate the market psyche.

The yield on the benchmark US 10-year paper was above the symbolic 3% handle for the first time since January 2014‚ driven by the expectation of high inflation‚ which could ultimately lead to high interest rates in the US.

Rand Merchant Bank analyst Nema Ramkhelawan-Bhana said the rand breaking through R12.45/$ “is not inconceivable as investors shy away from local stocks and bonds”.

“Tactical buying at weaker levels — particularly on the longer-dated South African government bonds — could provide some rand respite; though the short-term trend is skewed toward weakness.”

The weaker rand comes as at time when oil prices are on an upward trajectory‚ a combination that poses a threat to the inflation outlook.

Reserve Bank governor Lesetja Kganyago was less dovish than the market had hoped in March when he announced a 25 basis points cut in interest rates‚ noting that inflation might have reached its lowest point in the cycle.

At 10:14am‚ the rand was at R12.4383 to the dollar from R12.3264‚ R15.1715 to the euro from R15.0793 and at R17.3368 to the pound from R17.2295.

The euro was at $1.2196‚ from $1.2233.