NEWS / Monetary Policy

South Africa rand trends weaker, eyes 7/dollar

JOHANNESBURG - South Africa's rand drifted weaker against the dollar on Monday, weighed down by emerging market woes and softer commodity prices, leaving the unit vulnerable to test 7/dollar.

The rand slipped about 6 cents to retest Thursday's 11-month trough of 6.9420 per dollar, before recovering slightly to 6.9244 by 0655 GMT. It closed at 6.8851 in New York on Friday when local markets were shut for a public holiday.

"Emerging market currencies are not looking that great and the dollar is making a bit of a recovery. Commodities are also underperforming and the risks have turned against the rand for the time being," said George Glynos, markets analyst at ETM.

"We should see the rand testing the mid-6.90s during the course of the day."

Investors have been dumping emerging market currencies with high current account deficits such as the rand. The South African unit is the most liquid emerging market currency and tends to be worst affected during periods of turmoil.

Traders reckon that sustained trading above 6.90/dollar could pave the way for a slide to the key 7 barrier, last breached in May 2004. The rand has depreciated about 8.7 percent against the dollar so far this year.

The dollar rose across the board, boosted by expectations the Federal Reserve will raise short-term interest rates perhaps two more times in coming months.

The euro fell to around $1.2602 from $1.2640 late on Friday. It is the currency of South Africa's main trade partner and often sets the tone for the rand.

A 1.6 percent fall in the price of gold also pressured the rand, which has depreciated by about 12.3 percent versus the dollar so far this quarter.

Government bonds trended weaker, with the yield on the most-traded R153 bond due 2010 up 1 basis point at 7.98 percent, while the yield on the benchmark R157 due 2015 climbed 2 basis points to 8.19 percent.