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Rand recovers some ground

The rand recovered some ground against the dollar after a heavy sell-off in the previous session.

The rand recovered some ground against the dollar after a heavy sell-off in the previous session. Picture: EWN.

JOHANNESBURG - The rand recovered some ground against the dollar on Tuesday after a heavy sell-off in the previous session which left the currency looking oversold.

The local unit however remains hostage to weak fundamentals in the continent's most developed economy, most notably a resurgent power shortage that threatens to bring some businesses to their knees.

The rand was at 11.4270 against the dollar, up 1 percent from Monday's close at 11.5475 in New York.

Government bonds however extended the previous day's losses, with the yield for the government bond maturing in 2026, the benchmark for the secondary market, adding 4 basis points to 7.835 percent.

The currency had tumbled more than two percent to 11.5750 on Monday, its weakest in six years, after South Africa's current account deficit, a longstanding source of vulnerability, remained wide in the third quarter.

Investors are also worried about the implications of power shortages, which power utility Eskom says could spill into 2015.

The power crunch could see another credit downgrade for South Africa when Fitch and Standard and Poor's issue their latest reviews on Friday.

In all, the rand has fallen more than 9 percent against the dollar this year, partly due to wage strikes which hit output in the platinum, steel and engineering sectors earlier in the year.

"The rand has dropped further this week and it is expected to face further pressure once US interest rates start to rise around mid-2015," Nedbank said in a note.

On the plus side on Tuesday, the latest manufacturing output data pointed to a strong recovery for the sector in the third quarter after slumping earlier due to the strikes.