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Rand firmer, still at risk to strains

Both local and offshore.

 South Africa’s rand firmed against the dollar early on Monday ahead of a busy data week in which worrying growth indicators and the increased likelihood of a US rate hike could push it lower.

At 0615 GMT the rand had firmed 0.34% to 12.4400 per dollar against a close of 12.4825 in New York, as the dollar took a breather from its recent rally, allowing the local unit to pull back from 13-year lows hit the previous week.

Local current account deficit figures due on Tuesday and inflation data on Wednesday are expected to show conditions in Africa’s most advanced economy remain shaky, opening the door to further falls in the currency and outflows of investment.

“A very bad (current account) figure could set the rand running on its own,” said John Cairns, a trader with Rand Merchant Bank, adding that if the deficit surprises and fails to contract to the 5.5% of GDP forecast, the currency could suffer.

The current account gap sits at 6 percent of GDP and has been cited by ratings agencies as a major constraint on growth and a risk for the country’s credit status.

“While the deficit is expected to contract further this year, we seem to be struggling to fund it: foreigners have turned net sellers of bonds year-to-date,” Cairns added in the morning market note.

Government bonds were firmer in early trade, with the benchmark paper due in 2026 shedding 4 basis points to 7.95 percent, although the weaker currency and an uptick in consumer inflation may keep demand for local debt instruments on the back foot.

Year on year inflation for January was at 4.4%, with a Reuters poll predicting the headline to drop further to 3.8 percent in February, as global oil prices remain low.

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