South Africa's rand turned weaker against the dollar in late Johannesburg trade, giving back earlier slight gains as fears of trade wars between China and the United States rattled investors already jumpy over European debt woes.
Government bonds also gave up the previous day's gains and yields jumped higher as investors sought the relative safety of U.S. Treasuries despite the higher returns offered by local debt.
The rand touched a session high of 7.79/dollar earlier, before coming off to 7.8990 by 1606 GMT, down 0.8 percent from Wednesday's close at 7.8365.
Basically the euro's come off quite a bit today and is trading back down above 1.37. There's a little bit of risk (aversion) back on the table again, with China making statements around the potential for 'trade wars' between the U.S. and China, head of institutional sales at Nedbank Brigid Taylor said.
China's largest business group said on Thursday it would rethink the investment environment in the United States after the U.S. Senate approved a controversial bill aimed at making Beijing lift the value of the yuan.
We've seen the indicators for risk (aversion) and the U.S. (10-year) Treasuries strengthened back down to 2.14 percent from 2.20 percent and the stock markets are off. It's nothing phenomenal, it's not as though there's been a massive sell-off, just really cautious trade with a little bit of risk off book, Taylor said.
Government bonds also retreated, and the yield on the issue due in 2015 climbed 9.5 basis points to 6.75 percent while that for the longer-dated 2026 was up 8.5 basis points to 8.43 percent.
The volatility in the rand, which hit a 28 month low of 8.4950 in September, will make it harder for the Reserve Bank to decide on rates at its last policy meeting for the year in November as it balances the risk of inflation against a struggling economy.
While a volatile exchange rate may argue in favour of leaving the policy rate on hold, upholding its inflation-fighting credentials must be seen in the context of allowing the economy to possibly slip into recession, Brait economist Colen Garrow said in a client note.
The rand rallied as much as two percent to a two-week high against the dollar on Wednesday, partly buoyed by comments from Finance Minister Pravin Gordhan that the government was ready to use forex reserves to stabilise the market.