Johannesburg - South Africa's rand fell to its weakest level in three weeks against the dollar on Wednesday, while yields on local bonds hit a 14-day high, as sentiment on emerging market assets turned sour.
The rand tumbled 1.23 percent to 11.1690 by 16:43 SA time, its weakest point against the dollar since October 16, bursting through a recent support level of 11.0700 and opening the door to test next support at 11.1590.
The rand suffered as the dollar was bolstered by Republican victories in US mid-term elections and by better-than-expected US jobs data.
“The divergence between European growth and US strength has reaffirmed demand for the dollar,” said Sean McCalgan, an economist at ETM Analytics.
“The Russia/Ukraine conflict has investors worried as well. People are getting out of EM positions before the bad news or strong selling pressures start to emerge.”
Local data did not support the rand either as a South African business confidence index fell to 88.8 in October, from 89.2 in September.
South African government bonds tracked the rand weaker, with the benchmark issue due in 2026 adding 6 basis points to 8.035 percent, a level last seen on October 21.
“Locally, bonds were affected by gold, but the main driver is the Russian rouble,” said Mark Southworth, a bond trader at CITI Bank, after the spot-price of gold dipped to a four-year trough and the Russian currency touched fresh lows.
On Wednesday the Russian central bank halted interventions that had seen it spend billions a day to prop up the rouble, battered by sanctions and falling oil prices.
The Russian bank's move, as well as continued tensions between Russia and Ukraine, culminated in sentiment towards emerging market assets turning negative and investors opting for the safe-haven dollar. - Reuters