Rand does U-turn as it succumbs to global risk aversion
Investors are on edge after China released disappointing manufacturing data for December
The rand turned weaker on Wednesday afternoon, succumbing to deepening global risk aversion.
The local currency is often viewed as a barometer of sentiment towards emerging markets, which are vulnerable to changes in investor attitudes because they are generally perceived as risky.
Investors were on edge again, after China’s disappointing manufacturing data reinforced perceptions of a slowing global economy.
China’s manufacturing data for December contracted for the first time since May 2017, setting off another bout of sell-offs across risk assets.
Local bonds also weakened, with the yield on benchmark on the R186 rising to 8.930% from 8.875% previously.
Brent crude fell nearly 2% to $53.16 a barrel, in a move that will potentially soften the effect of a weaker rand on the inflation outlook.
ETM Analytics market analyst Halen Bothma said the lower oil price decreases the chance of the Reserve Bank having to increase interest rates further in the near term, though he said the uncertain global environment remains a wild card.
Perceived safe-haven assets, including the yen and the dollar, attracted a fair amount of buying support on the day.
At 3.19pm, the rand was 0.56% weaker against the dollar at R14.4774, but was relatively flat against the euro at R16.5076 and 0.26% stronger against the pound at R18.3088. The euro had weakened 0.54% against the dollar at $1.1402.