South Africa’s rand weakened the most in eight trading days versus the dollar on speculation its advance to a three-year high on Wednesday was encouraging some investors to purchase foreign currency at cheaper levels.
The rand declined as much as 0,6% to 6,6981 per dollar, its steepest intra-day slide since December 17.
The currency traded little changed at 6,6599 by 4:16 pm in Johannesburg, from a previous close of 6,6602.
“A few speculative traders here and there are probably trying to mop up some dollars at slightly cheaper levels,” George Glynos, managing director of Econometrix Treasury Management, a Johannesburg-based bond and foreign-exchange company, said in a telephone interview. “In such thinned-out holiday-period trading a few speculative orders can have an impact on the market.”
The rand rallied to its strongest level since December 2007 on Tuesday as rising precious metals prices and South Africa’s higher interest rates compared with developed markets lured investors.
The currency has surged 41% since the start of last year as near-zero interest rates in developed countries encouraged investors to place their money in higher-yielding emerging markets, a strategy known as the carry trade.
Central bank rates as low as 0,1% in Japan and 0,25% in the US compare with deposit returns of 5,5% in South Africa, even after nine reductions since December 2008.