Rand breaks 10.50 resistance to fresh two-month high vs dollar

JOHANNESBURG (Reuters) – South Africa's rand convincingly broke through 10.5000 per dollar resistance on Thursday, buoyed by euro gains and the possibility of an end to a three-week metal workers' strike.

Analysts said investors were also relieved by evidence, through inflation data in the previous session, that the South African Reserve Bank was taking the right policy path by setting out on a gradual interest rate tightening cycle.

The SARB raised rates by 25 basis points to 5.75 percent last week to curb inflationary pressures, saying the hike should be seen in conjunction with a 50 basis point increase in January, when the rand had plunged to 5-year lows.

One of South Africa's striking unions broadly accepted a wage increase offer of up to 10 percent on Thursday, which is likely to take some 20,000 metal workers out of the strike.

At 1503 GMT, the rand traded at 10.4900 to the dollar, up 0.2 percent from its close in New York on Wednesday. It earlier hit a session high of 10.4660, making a convincing break through 10.5000 resistance, which traders say opens up the 10.3000-10.4000 space. It was last at these levels on May 30.

"In the near term it does look like the SARB has managed to put a lid on dollar/rand gains and a break below 10.50 to targets in 10.30-40 is possible," said Anisha Arora, emerging market analyst at 4Cast.

However, strike concerns, global geopolitical risks and a generally poor domestic economic outlook could see the rand resume a weaker trend, Arora cautioned.

Yields on government bonds were up 3.5 basis points to 8.15 percent on the benchmark 2026 issue and rose 1 basis point to 6.65 percent on the 2015 note.