Johannesburg - The rand firmed on Wednesday as investors ignored local factors and bet on the European Central Bank delaying plans to taper its asset buying programme.
Gold mining stocks led the bourse weaker, still reeling from Tuesday's drop in bullion prices.
By 15:19 GMT the rand had firmed 0.87% to R13.7100 per dollar, shrugging off September's weak business confidence print.
"The rand initially recovered during Wednesday’s European session as speculation that the European Central Bank (ECB) would start to taper its asset buying program died down after the ECB’s media officer said that the bank had not discussed doing so at its last meeting," NKC African Economics economist Gerrit van Rooyen told Reuters.
The currency gave back some of its gains after some better-than-expected US data releases, but resumed its rally in late afternoon trade.
Bloomberg reported on Wednesday that the rand is currently undervalued and fluctuations in the currency are partly driven by political turmoil, Reserve Bank Governor Lesetja Kganyago said.
“At the moment we could say that there is undervaluation of the rand,” Kganyago said in an interview with Bloomberg TV’s Jonathan Ferro, Alix Steel and David Westin in New York Wednesday. “By how much we don’t know because there are so many moving parts.”
While the rand has gained 13% against the dollar since the start of the year, after losing 25% of its value in 2015, it was the most volatile among 31 major and emerging-market currencies tracked by Bloomberg during the last six months.
The currency slumped to a record after the removal of Nhlanhla Nene as finance minister in December and weakened again in August after reports that the current Finance Minister Pravin Gordhan is being probed by police and may be arrested.
On the bond market, government bonds weakened, with the yield on the benchmark 2026 issue up 9 basis points to 8.65%.
“South African bond yields also knee-jerked higher following positive US durable goods and factory order numbers,” said Van Rooyen.
On the bourse, the benchmark Top-40 index fell 0.36% to 45 308 points, while the All-share index dropped 0.33% to 51 868 points.
Local gold mining stocks remained under pressure, despite spot gold prices rising 0.5%, following a plunge to its three-month low on Tuesday in a sharp sell-off triggered by speculative selling and a break of key technical support levels that continued to weigh on investors.
"It has recovered a bit from yesterday but is still weaker than it was as a result we have seen some selling taking place in that sector," said Independent Securities trader Ryan Woods.
The biggest loser on the bourse was Sibanye Gold which fell 7.64% to R41.34 rand extending its losses from the previous session, when it had to suspend its Cooke mining operations due to violence between rival unions.
The mine has since been reopened.
Further losses on the bourse were curbed by distributor of prepaid airtime, Blue Label Telecoms, which closed up 8.89% to R20.20 after agreeing to pay R5.5bn for a 45% stake in mobile phone group Cell C.
Trading volumes were low, with 199 million shares changing hands compared with last year's daily average of 296 million.