JOHANNESBURG: South Africa's rand eased against the dollar in early Wednesday trade and is likely to stay on the back foot as fears of contagion from Europe's liquidity problems dent investors' appetite for higher yielding but riskier emerging market assets.
Government bonds were up slightly in early trade, with yields retreating after Reserve Bank data showed growth in private sector credit demand braked more than expected in April.
The rand was at 8.3422 against the dollar by 0645 GMT, down 0.27 percent from Tuesday's close at 8.32.
The ongoing financial troubles in the euro zone, with which South Africa trades heavily, were likely to keep the rand under pressure, Tradition Analytics said.
The euro fell to a two-year low, hurt by worries about Spain's soaring borrowing costs and expectations more money may be needed to support its ailing banks.
"Europe is far from being fixed and until we see major signs of either true reform or papered over reform the rand is likely to struggle to make much headway," Tradition Analytics said.
On the debt market, the yield on the three year paper shed half a basis point to 6.385 percent compared with Tuesday's close while that for the 14-year issue was flat at 8.345 percent.
Yields pulled back slightly after Reserve Bank data showed credit demand by the private sector braked more than expected to 7.33 percent year-on-year in April compared with a 9.16 percent rise in March, backing the argument for further interest rate cuts to stimulate economic activity.
Rates are already at 30-year lows after a monetary loosening cycle that ended in November 2010.
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