The hysteria of a potential December taper is spreading to South Africa as government bonds are in the process of the longest selloff in five years. The South African rand has declined for the third day and correlating with the bond decline.
Worries about how the African nation will fund its current account deficit if the Federal Reserve does taper have been causing a frenzy in the bond markets. South Africa’s current account gapped 6.8 percent of gross domestic product in the third quarter, according to the data provided by the South African central bank as foreign investors tossed aside public debt for the tenth consecutive day.
Bond outflows has rocketed to $1.6 billion, or 16.6 billion rand.
Mohammed Nalla, head of strategic research at Nedbank Group Ltd., said “the balance of payments position remains vulnerable, maintaining pressure on the rand.”
The more conservative consensus has been a March taper by the Federal Reserve with approximately $15 billion in liquidity removed from their massive monetary easing policy.
The USDZAR has been in a clear, recent up trend and approaching resistance levels at the yearly high of 10.4934. If the selling pressure continues to weigh on the rand and the dollar continues to strength, the markets could see new highs.
Look for support near 10.3603, but a speculative target of 10.6060 is in play above the extension of the yearly high.