South Africa's rand at 4-week highs but vulnerable to current account

JOHANNESBURG (Reuters) - South Africa's rand climbed to four-week highs against the dollar on Friday, lifted by buoyant emerging market investor sentiment following this week's resolution to the U.S. fiscal standoff.

Government bonds followed suit, with yields falling to May/June lows as investors whose risk appetite had been dented by the prospect of a default by the world's biggest economy came back to high-yielding emerging markets.

Currencies like the rand have also gained ground in recent weeks after the U.S. Federal Reserve delayed the start of a cut-back in its $85 billion-a-month bond purchases that have channeled a steady flow of portfolio money into emerging markets.

By 1543 GMT the local currency was at 9.7475 per dollar, up 0.74 percent from Thursday's New York close. It flirted briefly with 9.7410 earlier on Friday, the strongest it has been since September 20.

Against the euro, the rand was up 0.64 percent at 13.2825.

On the debt market, yields fell across the curve, with the 2026 secondary market benchmark shedding four basis points to 7.745 percent and the shorter-dated 2015 giving up 1.5 basis points to 5.755 percent.

Government bonds could however pull back next week if Finance Minister Pravin Gordhan adjusts his budget deficit forecast for the current fiscal year wider and signals increased debt issuance.

For its part, the rand, which has weakened nearly 16 percent since the start of the year, remains hostage to a yawning current account deficit of around 6 percent of GDP which makes it vulnerable to sudden flights of capital during spurts of risk aversion.

"Although the rand is cheap, its fundamental underpinnings remain weak," Standard Bank said in a market note.

"The Fed tapering delay and U.S. fiscal quick-fix will offer little more than a temporary reprieve."

Source: http://news.yahoo.com/south-africas-rand-4-week-highs-vulnerable-current-160221997--business.html
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