S.Africa's rand and bonds on the back foot

Tue Feb 14, 2012 7:09am GMT

JOHANNESBURG Feb 14 (Reuters) - The South African rand weakened against the dollar on Tuesday as ratings downgrades in Europe weighed further on investor risk sentiment and pushed local factors into the background.

Government bonds fell in tandem, pulling yields on the benchmarket three-year and 14-year bonds 7.5 basis points higher to 6.65 percent and 8.32 percent respectively.

At 0655 GMT, the rand was 0.37 percent softer at 7.707 against the dollar, the sixth weakest performer in a basket of 20 emerging market currencies tracked by Reuters. It closed on Monday at 7.6785.

"It's all because of Moody's and the sovereign ratings last night although they were not a major surprise, to be honest. We all know Europe's a massive mess and the ratings agencies have lost a lot of credibility," Standard Bank dealer Warrick Butler said.

Moody's downgraded several European countries, including Italy, and said it may cut its triple-A ratings on France, Britain and Austria but market watchers said the news was hardly surprising given the debt crisis playing out in the region.

"I don't really expect too many fireworks today. There's a good resistance level at 7.74 and we're looking to play the range 7.65-75. The rand really seems to be dominated by external factors at the moment," Butler said.

Local factors have had little impact on financial markets in recent months, although a cryptic central bank statement last Friday hit the currency by triggering speculation of a major monetary policy shift or the departure of a senior official.

The statement said there would be an announcement of "national importance" over the weekend, although it turned out to be merely the introduction of new bank notes honouring former President Nelson Mandela.

Governor Gill Marcus apologised for the confusion caused. (Reporting by Stella Mapenzauswa; Editing by Ed Cropley)

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UK £ USD =1.2179
Euro USD =1.0885
Rand USD =0.0713