Weak S.Africa fundamentals likely to cap rand gains

JOHANNESBURG (Reuters) - South Africa's rand traded firmer against the dollar on Friday as high-yielding emerging markets came back into favour after a sell-off at the start of the weak triggered by weak Chinese growth numbers.

But a bleak outlook for the domestic economy is likely to cap any strong gains in the currency and keep the door open for further policy easing from the central bank.

The rand was 0.39 percent stronger at 9.1423 to the dollar by 0647 GMT after ending Thursday's session in New York at 9.1806.

However, government bonds edged lower in early trade, with yields recovering slightly after slumping in the aftermath of lower-than-expected inflation data on Wednesday.

The yield on the 2026 benchmark bond added 2.5 basis points to 6.925 percent while the 2015 paper crept up 1.5 basis points to 5.31 percent.

The rand is still down 8 percent against the dollar so far this year, weighed down by strikes that have hit mining output while weak economic numbers including a current account deficit of over 6 percent of GDP remain a drag on sentiment.

"Given the trend of poor data and ... the chance of a rate cut further down the line if this data does not pick up, the risks to a weaker rand still remain in place," said Standard Bank trader Warrick Butler.

"But at the same time, should equity markets and commodities recover in the short term, we could easily see the rand trade on a stronger footing."

Source: http://news.yahoo.com/weak-africa-fundamentals-likely-cap-rand-gains-065822142--finance.html

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