South African rand extends gains on lower U.S. yields

JOHANNESBURG (Reuters) -The South African rand jumped on Wednesday as risk-off sentiment pushed U.S. Treasury yields lower, extending Tuesday’s gains.

At 1603 GMT, the rand traded at 18.8350 against the dollar, nearly 1% stronger than its previous close.

The dollar last traded about 0.05% stronger against a basket of global currencies.

The rand’s gains this week “could be read as a surprising move, given the events taking place in the Middle East, which would usually add pressure on currencies such as the ZAR,” ETM Analytics market analyst Bheki Mahlobo told Reuters.

But investors seeking safety during heightened tensions has resulted in lower U.S. Treasury yields and higher gold prices, benefiting South Africa’s terms of trade, Mahlobo added.

Some investors use the rand as a proxy for emerging market risk, and the currency is highly sensitive to shifts in global risk appetite.

On Thursday, investors will turn to U.S. inflation figures for clues on the U.S. Federal Reserve’s future interest rate path.

“Should consumer prices move closer to the U.S. Fed’s target, we could see the ZAR continue to recover towards the end of the week,” Mahlobo added.

On the Johannesburg Stock Exchange, the blue-chip Top-40 index closed around 0.1% weaker.

The government’s benchmark 2030 bond was stronger, the yield down 6.5 basis points at 10.725%.

(Reporting by Tannur AndersEditing by Alexander Winning, Bhargav Acharya and Aurora Ellis)