EDWARD WEST

Finance Editor

AN ERROR on the Tokyo International Financial Futures Exchange likely caused the rand to briefly slide more than 5% to R8,28 to the dollar yesterday.

The weaker lurch adds to the already heightened volatility of the exchange rate, with the local currency fluctuating up to 2% on some trading days last week.

Although the rand is still more than 20% stronger against the dollar in the year to date, it began to retreat in earnest last week after Finance Minister Pravin Gordhan said its strength was a concern for policy makers.

A bout of global risk aversion since then has also prodded the unit to give up more of the year’s gains. Citigroup senior dealer Julian Wilson said a mistake on the yen-rand cross exchange rate triggered a series of margin calls on the Tokyo market, which caused the rand to slide against the dollar yesterday.

He said the exact nature of the sudden weakness was uncertain, but he had heard an incorrect rand-yen exchange rate had been entered on the Tokyo exchange, which had triggered margin calls on futures contracts, “which took the rand up for no reason at all”.

Nomura International emerging markets economist Peter Attard Montalto said the exchange “feeds prices from five banks, and it looks like one of them showed a very wide bid-offer (three-yen wide) price at the close on Friday and somebody hit the very wide bid at R8,4150.

“Since it is a good print on the exchange, the stop loss orders and margin calls were all triggered this morning at the market open.”

The rand was trading at R11,39 to the yen late yesterday, and just 0,85% weaker at R7,86 to the dollar. Wilson said the recent heightened volatility of the rand was in line with other currencies like the Australian dollar and the New Zealand dollar.

The currencies had tracked rising volatility in global equity markets that on the one hand had been driven by fear about global economic growth prospects, while on the other hand by a lifting of sentiment helped by the release of strong corporate earnings reports in the US.

Nedbank Capital head of forex trading Dave Gracey said the local unit had become increasingly volatile due to a combination of factors that had “conspired to weaken the rand”.

weste@bdfm.co.za