The rand weakened sharply against major currencies on Friday morning – falling more than two percent against both the dollar and the euro - amid rising global risk aversion.

Traders said most emerging market currencies were under pressure with more poor corporate results in the US and elsewhere quelling risk appetite.

They pointed out however that the local market was also very thin ahead of the weekend.

By 12pm the rand was bid at 7.7088 to the dollar from a previous close of 7.5550. It was bid at 11.9282 to the euro from a previous 11.6932 and at 15.0642 against sterling from 14.8495 before.

The euro was bid at US$1.5469 from US$1.5403 overnight, while gold was quoted at $889.70 a troy ounce from $883.45 overnight.

ETM analysts said in their morning report that the Nikkei has come under significant pressure today, closing down two percent, following downbeat forecasts from Toyota and Bridgestone who see the rise in raw materials costs as denting profit margins.

As a result, the carry trade is now being questioned and it is no coincidence that the rand failed to respond to Thursday's rally on Wall Street, they said.

"As the carry trades are being squeezed through losses on the Nikkei so the JPY has made some advancement against the USD despite the USD's recent recovery suggesting that carry trades generated outside of Japan might also come under some pressure," they explained.

Dow Jones Newswires reports that the dollar is lower in Europe Friday as risk aversion rises, crude prices hit a new record high and the euro gains support from the European Central Bank's continued hawkishness.

The euro has extended its gains against the dollar in European trading, boosted by the fact that ECB President Jean-Claude Trichet didn't signal any shift in the bank's policy stance Thursday following the widely expected decision to keep rates on hold.

Many market participants had expected Trichet to soften his hawkish stance following the recent run of weak data out of the euro zone.

"Trichet's apparent intransigence has ruffled a market that had become short euro in a relatively brief period of time, and the shake-out could see euro/dollar extend higher," said Daragh Maher, senior currencies strategist at Calyon.

Weaker-than-expected French industrial data, released Friday, which showed that industrial production fell 0.8 percent on the month in March, compared with a 0.5 percent rise in February, makes Trichet's steadfast hawkishness seem all the more surprising.

The greenback also came under pressure against the yen, due to a rise in risk aversion, prompted by American International Group's report late on Thursday of a record first-quarter net loss of $7.81-billion.

This increased risk aversion was reflected by a drop in Asian equities markets, with the Nikkei 225 Stock Average falling 287.92 points, or 2.1 percent, to close at 13 655.34 Friday.

UBS AG reported that its Risk Aversion Index was up at 0.35 from 0.26 Thursday.

Bonds marginally weaker on rand

Bonds were marginally weaker by noon on Friday on the back of the softer rand, with yields between two and eight basis points weaker.

Further yield curve inversion was evident as the shorter end lost the most – a reflection of the short-term rate and inflation negativity.

By 12.27pm the short-term government R153 bond was at 10.420 percent from its previous close of 10.345 percent, while the medium-term R157 was at 9.505 percent from its previous close of 9.470 percent. The longer-term R186 bond was bid at 9.325 percent from its previous close of 9.290 percent.

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