The rand remained on the back foot in late trade on Wednesday on a combination of dollar strength, illiquidity and emerging markets coming under some pressure amid rising risk aversion.

At 3.45pm the rand was bid at 10.4033 to the dollar from a previous close of 10.3051. It was bid at 13.0532 to the euro from a previous 12.9070 and at 15.8875 against sterling from 15.8983 before.

The euro was bid at US$1.2539 from US$1.2509 overnight.

"The rand is mainly weaker on dollar strength. But emerging markets are also under pressure, plus there is no liquidity in the market at the moment," A local currency trader said.

RMB currency analysts said the market would also be keeping an eye on Wall Street which ended lower on Tuesday, while there could also be some spill-over from weakness in the Turkish lira and the Russian rouble, the latter having effectively been depegged from its EUR and USD basket yesterday after reserves fell $50-billion in October alone.

Dow Jones Newswires quoted Ulrich Zachau, the World Bank's country director for Turkey, on Wednesday as saying the country will need $130-billion in foreign financing next year.

"The World Bank forecasts Turkey will need $130 billion in foreign financing in 2009, and $120-billion in 2008," Zachau said in a conference in Istanbul.

The international banking organization expects a fall in the current account deficit of Turkey in the coming years following serious decreases in oil prices, Zachau also said.

"If the Turkish lira weakens any further, we could see the rand weakening in sympathy," a local trader said, saying the rand could see 10.60 to the dollar.

The rand began losing ground on Tuesday afternoon after Standard & Poor's joined the chorus of concerns about South Africa's current account deficit in cutting its outlook to negative from stable. Exacerbating the rand's weakness was the fact that emerging markets have come under some pressure with risk aversion beginning to creep back into markets as some of the initial euphoria about the Chinese fiscal stimulus package starts to dissipate.

Moody's announced on Wednesday afternoon that they were not about to change their positive outlook on SA's foreign currency ratings, which should be welcomed by the market.

"Despite the macro developments, Moody's retains its positive outlook on South Africa's Foreign Currency Ratings. The economic policy stance so far is reassuring and deviations should be constrained by the markets given the large current account deficit," said Kristin Lindow, Senior Vice-President from Moody's.

"We also expect the fall in inflation will happen pretty quickly, which should ease pressure from the political arena to revise the target range," she added.

Bonds stuck in weak band; eye rand

Bonds remained mired in a weak band by the late afternoon on Wednesday on the less dear rand, but a bond dealer said news from Moody's that they were not about to downgrade South Africa was positive.

Fitch on Monday and then Standard & Poor's on Tuesday came out with outlook downgrades for SA, with the S&P news leading to rand weakness.

However, Kristin Lindow, Senior Vice-President from Moody's, told I-Net Bridge on Wednesday that despite the macro developments, Moody's retains its positive outlook on South Africa's Foreign Currency Ratings.

"I must say that after the Fitch and S&P downgrades, I was getting a bit worried," said a local bond dealer.

He saw the news from Moody's as a relief.

By 4.04pm the short-term government R153 bond was at 9.215 percent from its previous close of 9.115 percent. The medium-term R157 was at 8.820 percent from 8.660 percent at Tuesday's close and the long-term R186 was at 8.490 percent from 8.375 percent before. The R157 improved slightly from noon levels of 8.840 percent soon after the Moody's news was broken.

I-Net Bridge