Rand on the back foot as strong dollar pushes unit above R12.30

Cape Town – The rand staged a mild comeback on Tuesday after the local unit and other emerging currencies on Monday took a beating from a stronger US dollar that firmed on the back of rising Treasury yields

By 13:16 the rand was trading at a 3-month low at R12.32 (+0.09%) to the greenback. Earlier in the session the local unit was flirting with the R12.40/$-mark, trading as low as R12.38 to the US unit. The rand opened trading on Tuesday at R12.34/$.

Sentiment has turned risk-averse, commented TreasuryONE dealer Andre Botha.

"We haven't seen the rand lose as much ground as it did [on Monday] for the whole of 2018. Treasury yields in the US flirted with the 3% psychological level and this, coupled with increasing inflation fears after the spike in oil prices, has seen the US dollar on the front foot.

"The dollar is above 1.22 against the euro at the moment, but oil is a little higher. Based on the focus that oil is enjoying at the moment [this] seems to suggest the rand could trade weaker," said Botha.

Although a correction in the SA currency was widely anticipated following months of being overvalued, the rapid pace at which it weakened on Monday following a rise in US bond yields came as quite a surprise, said Peregrine's Bianca Botes.

"It should be noted that this by no means reflects a state of turmoil for the currency: rather it is merely a move back to where the rand should realistically be trading," she said.

Botha expects the rand to reverse some of the losses in the medium-term as "we are still one of the favoured 'carry-trade' destinations".

In the absence of major data releases, currency dealers expect the unit to take its cue from the global markets and stay on the back foot for the rest of the day.

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