S.Africa's rand weaker, struggles to shake off weakness

JOHANNESBURG: South Africa's rand weakened sharply against the dollar on Monday as the greenback rallied across the board after the Bank of Japan's steps to weaken the yen.

The rand has been struggling to shrug off a weaker tone that saw it plunge to a 28-month low of 8.4950 against the dollar in September and has been at the mercy of fickle global sentiment in the past two months.

After its best week in two years, the rand was on the back foot on Monday as investors turned their backs on risky assets worried that last week's agreement to recapitalise banks was not enough to bring an end to the euro zone debt crisis.

Even data showing the biggest economy in Southern Africa recorded a surplus of 2.5 billion rand in September was not enough to boost the rand with dealers taking direction from battered world markets.

The rand was trading at 7.86 to the dollar at 1550 GMT, 1.68 percent weaker than Friday's New York close of 7.73.

"I fear the rand is going to move more towards the weaker side. I see it closer to 8.00 than 7.50 by the end of the year," said Ion de Vleeschauwer, chief dealer at Bidvest Bank.

"There are still huge structural issues in the euro zone in the medium to long term and the longer the crisis drags on the more the rand is going to remain under pressure."

With such an uncertain outlook, importers are likely to take advantage of the brief periods of rand firmness to buy dollar, limiting any significant rand gains in the near future.

South African government bonds followed the rand weaker, with yields rising from multi-week lows seen Friday.

The yield on the 2015 bond went up 3.5 basis points 6.595 percent and that on the 2026 issue was up 6.5 basis points to 8.31 percent.

Focus on Tuesday will be on Purchasing Managers' Index, which has been in contraction mode for two consecutive months and if it stays below the break-even point of 50, it will keep hopes of another rate cut alive.

Unemployment figures for the third quarter at 0930 GMT should shed further light on whether the country continues to shed jobs, even two years after it exited its first recession in almost two decades.