The rand was little changed to the dollar from its previous close on Monday afternoon‚ and well off its worst intraday levels‚ after the euro staged a comeback against the dollar.
However‚ analysts said the rand remained at the mercy of global developments and could weaken further again if risk-off sentiment did not subside soon.
Much depends on Turkey addressing investor concerns‚ something that has not been forthcoming so far. Analysts said it was crucial that interest rates be increased from their present 17.75% to stem further outflows resulting from the weaker lira.
The euro rebounded above $1.14 again after falling to $1.1365 as the Turkish lira slid to record lows‚ hitting 7.1171 to the dollar‚ before edging back below 7.00/$ again.
The rand plummeted to R15.41 to the dollar when Asian markets opened on Monday‚ a two-year low but a move that was clearly overdone.
Despite its recovery‚ the local currency battled to hold onto a best intraday level of R14.1805‚ weakening to R14.50 at midday‚ before finding support from the turnaround in the euro.
On Monday‚ Turkish President Recep Tayyip Erdogan reiterated his view that the Turkish economy would recover and that the lira will soon “stabilise”.
Further appreciation in the lira‚ however‚ was hindered by indications that Erdogan intends to maintain his hardline approach‚ as authorities clamp down on hundreds of social media accounts for allegedly worsening the currency’s plunge.
Investec chief economist Annabel Bishop says global risk aversion has clearly risen‚ and markets will be likely to continue to factor in the effect of the crisis in Turkey‚ as well as high core inflation in the US‚ with the Federal Reserve set to increase rates two more times in 2018.
“The rand may move weaker than R14.50 in the immediate term‚ although this is a significant resistance level for the domestic currency‚” she said. The rand is likely to fluctuate at first‚ before depreciating further‚ unless risk aversion subsides.
At 2.58am the rand was at R14.2388 from R14.2507‚ at R16.2574 to the euro from R16.2186 and at R18.1866 to the pound from R18.1807.
The euro was at $1.1418 from $1.1375.
While the US 10-year treasury has been firming again in safe-haven trade‚ local bonds have been weakening on Turkey’s emerging-market contagion.
After closing at 8.87% on Friday‚ the local 10-year benchmark government bond was bid at 9.12%‚ after opening at 8.865%.
At these levels‚ local bond yields remain even higher than those in Turkey. Yields on the Turkish 10-year government bond hit a record high of 8.914% on Monday morning‚ after falling briefly to 8.427% on Friday. Foreigners are concerned about the country’s ability to repay its foreign-currency-denominated debt‚ much of which is in US dollars‚ which may threaten the country’s banking system.
The 10-year US treasury yield retreated to 2.87% on Friday last week‚ from 2.97% earlier in the week‚ and was last seen at 2.8768%.
By: Maarten Mittner – BusinessLIVE
Source: TMG Digital.