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Rand hits five-year low against dollar

The rand pulled back after hitting R10,89 to the dollar, but some warn that further drops are due.

The rand pulled back after hitting R10,89 to the dollar, but some warn that further drops are due. Picture: Supplied.

JOHANNESBURG - The rand touched a fresh five-year low on Tuesday against the greenback before pulling back, but could breach the 11 to the dollar level in the short term due to the economy's weak fundamentals and the threat of platinum sector strikes.

The rand hit a low of 10.8950 to the dollar on Tuesday, its weakest since late October 2008.

The drop comes on the back of fresh labour woes in the mining sector, with the Association of Mineworkers and Construction Union (Amcu) due to hold a media briefing in Johannesburg on Wednesday about its current round of wage negotiations.

Amcu said on Monday its workers had voted in favour of a strike over wages at Impala Platinum (Implats), the world's second-largest producer of the metal. The union will also canvas its members at Lonmin and Amplats, a unit of global mining group Anglo American.

The threat of further labour unrest combined with South Africa's poor fundamentals, including widening current account and budget deficits, is likely to keep the rand under pressure.

"I wouldn't be too surprised to see the rand trading above 11 very soon," said one trader. "With the status quo it could happen quite soon."

The yield on the 2026 government bond climbed seven basis points to 8.245 percent while that on the 2015 paper was 1.5 basis points higher at 6.175 percent.

Earlier on Tuesday, South Africa's Treasury sold a total of R2.35 billion rand of its 2030, 2041 and 2026 government bonds.