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Africa, Forex

South Africa’s rand slides as rising U.S. yields sour risk demand

(Adds latest prices, analyst comments)

JOHANNESBURG, Feb 22 (Reuters) – South Africa’s rand weakened on Monday with demand for risk assets dampened by rising yields in the United States and some investor caution ahead of the South African government budget this week.

At 1530 GMT the rand was 0.66% weaker at 14.7925 per dollar from a close of 14.6950 on Friday. The unit had managed a one year high of 14.4050 early last week but has retreated since as investors reassessed likely rate moves in the United States.

Yields on 10-year U.S. government bonds touched one-year highs.

“The ZAR has been one of the most sensitive EM FX recently to rising US yields,” currency analyst at MUFG Bank Lee Hardamn said in a note.

Vaccine progress, expectations for faster economic growth and inflation in the world’s no.1 economy could push bond yields higher, further hitting risk currencies like the rand as investors look to the safe-haven treasury yields.

“A sharp move higher in US yields, especially real yields could increase downside risks for EM FX more broadly if not backed up by stronger fundamentals,” said Hardman.

Details of South Africa’s fundamentals are expected in Wednesday’s budget speech.

A Reuters poll last week showed South Africa’s consolidated fiscal deficit is expected to narrow this year because of an economic rebound, but the long-term trend of higher debt remains unchanged due to COVID-19 and pre-existing spending.

Stocks were down slightly, with the Johannesburg Stock Exchange’s Top-40 Index slipping 0.32% to 61,904 points and the broader All-Share Index closing 0.15% down at 67,363 points.

Petrochemical firm Sasol’s shares initially enjoyed a more than 4% rise after the company announced it had decided not to pursue a rights issue of up to $2 billion, but they had lost all their gains by market close to stand down 0.77%.

Anglo American Platinum climbed 1.52% after the miner posted a price-driven jump in annual profit and set its sights on a 20% increase in output, while peer AngloGold Ashanti’s shares also rose 0.91% after the firm boosted its dividend after a leap. (Reporting by Mfuneko Toyana and Emma Rumney, Editing by William Maclean)

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