Rand weaker with further losses seen

The resignation of Eskom’s chairman could dampen investor appetite.

South Africa’s rand weakened against the dollar early on Tuesday, extending the previous session’s losses, after the resignation overnight of the chairman of Eskom, the latest ruction to hit the power utility.

State-owned Eskom has introduced regular power cuts this year, hurting economic activity inSouth Africa, as it struggles with a backlog of maintenance on aging power stations.

At 06:45 GMT the rand was 0.11% softer at 12.1675 per dollar, after marking a third straight close above the crucial 12.000 mark, a technical level leaving the door open for further losses.

“The rand did trade through the 12.1500 resistance but was unable to accelerate higher as expected,” said Oliver Alwar, currency trader at Standard Bank.

Data on Monday showing that the government’s budget deficit rose in the first 11 months of 2014/15 to 157 billion rand ($13 billion), from 139 bln rand in the same period a year earlier, added pressure on the rand.

The government is due to release trade balance data later on Tuesday.

“This number (trade) will garner focus for obvious implications to the current account, so any excessive deficit and we could see more weakness in the rand,” said Alwar in a market note.

The resignation of Eskom’s chairman early on Wednesday after its board accused him of acting improperly by suspending the chief executive, could dampen investor appetite as the worst power shortages since 2008 continue to hinder economic activity.

Rating’s agency Standard and Poor’s cut Eskom’s credit rating to junk status earlier this month, saying the suspensions had led to a loss of confidence in the utility’s governance.

Government bonds also weakened, tracking the softer currency, with the yield on the benchmark bond due in 2026 adding 3.5 basis points to 7.935%.

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