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Rand weaker as fiscal, political risks back on investors' radars

On Wednesday the dollar had bounced higher, with data in the world’s no.1 economy showing firmer manufacturing activity, easing some of the fears that the COVID-19 induced decline in global growth might last for longer than initially hoped for.

Picture: Supplied

JOHANNESBURG - The rand weakened early on Wednesday, giving back some of the gains from the previous session as investors pocketed profits from the risk-on rally, while hopes over easing tensions inside the ruling party faded.

At 0645 GMT, the rand was 0.32% weaker at R16.7000 per dollar, having rallied to near a one-month best of R16.5600 on Tuesday in a broad emerging market advance driven by a sharp slide in the greenback.

“The rand has benefited from signs of the strengthened position of the president as this kindles hopes that the urgent reforms can now finally get under way. The continued (global) risks are likely to limit the potential for ZAR recovery in our view though,” said Elisabeth Andreae of Commerzbank.

On Wednesday the dollar had bounced higher, with data in the world’s no.1 economy showing firmer manufacturing activity, easing some of the fears that the COVID-19 induced decline in global growth might last for longer than initially hoped for.

Locally, nationwide electricity blackouts by state firm Eskom for a second day rekindled concerns about South Africa’s ability to shake off recession and a fiscal crisis.

Ratings agency Moody’s said on Tuesday there was a “meaningful risk” of wider deficits in countries such as South Africa as governments were forced to bail out failing state firms.

Fading enthusiasm about President Cyril Ramaphosa’s stance on corruption following a face-off between opposing factions in the governing African National Congress (ANC) over the weekend also stalled the rand’s progress.

“Most of what was announced on corruption is already resolution or ANC rule, and so we see the dial flicking on dealing with corruption, but the bar has not yet been met,” said Peter Attard Montalto of research firm Intellidex.

With no major data releases on the day the currency is seen remaining range-bound.

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