JOHANNESBURG - The rand fell against the dollar on Friday, booking its softest week in a month after a credit rating cut added to investors' nervousness about holding the risky South African currency.
Investors on the hunt for euros drove the rand to give up two percent against the euro during the session.
Fitch cut South Africa's credit rating late on Thursday, citing concerns about policy uncertainty and labour unrest.
The rand broke through the week's range to a month low of 8.7446 in late afternoon trade on Friday, securing a place as the biggest loser against the dollar in a basket of emerging market currencies tracked by Reuters. By 17h45 it had hit R8.738.
The break through 8.70 for the first time since early December could see the rand target 8.80 next week, where it could get technical support, dealers said.
Dealers said a combination of hedge fund buying and typical rand weakness at the start of the year were also combining to pressure the local unit.
The rand was also weaker against the euro, falling 2.18% at 1530 GMT.
Investors globally were caught short of euros after European Central Bank President Mario Draghi gave no signal he would cut rates, and instead sounded optimistic on the euro zone economy.
"It is a question of massive short-covering of the euro/dollar and euro crosses globally, including euro rand," said Ion de Vleeschauwer, a dealer for Bidvest Bank.
"Mr Draghi seems to be very confident that the European crisis is something of the past and in the midst of all this we had the Fitch downgrade," de Vleeschauwer added.
Dealers expect steady flows into government bonds to temporarily slow because of the negative sentiment created from Fitch cutting South Africa's rating.
However, an expected flood of money from the developed economies with ultra-low interest rates should find its way to high yielding emerging markets.
Offshore investors piling into local debt drove the benchmark 2026 bond yield to a six-month low before the Fitch downgrade.
"I don't think bond weakness will last," said Christopher Shiells of Informa Global Markets.
"It's just a trickle out of the market given the downgrade and weak rand. At the moment South African bonds are a bit expensive, so some correction is needed."
Yields bounced and ended up 4.5 basis points to 7.15% on the benchmark and were up 1.5 basis points to 5.335% on the 2015 issue.
Stocks
Stocks inched lower on Friday, dragged down by mining heavyweights such as BHP Billiton and Impala Platinum, but remained within reach of recently scaled record peaks as world shares hovered near multi-month highs.
Johannesburg-listed shares of diversified mining group BHP fell 2.5% to R291.20 as Cyclone Narelle off Australia's northwest coast strengthened into a category 4 storm, shutting ports handling a fifth of the world's globally traded iron ore on Friday.
"It's global equity markets that are keeping things bubbling at the moment. It was BHP and Impala that held things back today and they were story specific," said Sasha Naryshkine, an analyst at asset manager Vestact.
Impala Platinum, or Implats, fell 1.4% on news the world's second-largest platinum miner had agreed to sell a majority stake in its Zimbabwe unit to local blacks for $971 million to meet racially based ownership targets set by President Robert Mugabe..
Retailers also fell with Massmart, which is 51% owned by Wal-Mart Inc Stores, shedding 2.30% to R188.00 as it continued a technical correction started early in the week when its 14-day RSI - a momentum indicator tracked by analysts - showed it was overbought.
It has shed over 4% this week.
The blue chip Top-40 ended the session 0.06% lower at 35,792.52 while the wider All-share index shed 0.05% to 40,281.14. Both indices were within striking distance of record intraday peaks scaled in the previous session.
Trade ebbed with 143 million shares changing hands, compared to the 155 million shares traded on Thursday. Advancers outnumbered decliners, 142 to 130.
