The rand weakened to a near six-year worst level against the dollar on Wednesday morning as global markets plummeted following a five percent fall on Wall Street overnight.

The rand spiked above the nine rand per dollar level to 9.4288 — a level last witnessed in November 2002 — as Japanese stocks plummeted 9.4 percent in the wake of Wall Street's fall. Other Asian markets were also under severe pressure, with the Hang Seng index ending 8.2 percent lower.

Notwithstanding an announcement earlier Wednesday by the UK government that it would invest up to £50-billion in UK banks and make £200-billion in liquidity available, the FTSE was recently down six percent.

Dow Jones Newswires reports that European stocks plunged on Wednesday amid heightened anxiety about a deep and far reaching economic recession, and as doubts emerged over the U.K. treasury's attempt to revive a wilting banking sector.

"Reconciliation and responsibility are needed quickly to ensure that the crisis does not deepen further, but, clearly, individual states are getting their own house in order first," said Dermot O'Leary, economist at Goodbody Stockbrokers in Ireland.

"The UK's decision to directly inject capital into its banks would have been thought unbelievable not so long ago, but it may now become the template that other nations will have to follow."

A local currency trader said that the rand is being driven solely by the global market turmoil.

"There's a major rise in global risk aversion — a flight from your more riskier assets — which has seen the rand weaken sharply," a local currency trader said.

At 10:20 the rand was bid at 9.3319 to the dollar from a previous close of 8.9184. It was bid at 12.7198 to the euro from a previous 12.1303 and at 16.3652 against sterling from 15.6127 before.

The euro was bid at $1.3650 from $1.3613 overnight, while gold was quoted at $907.35 a troy ounce from $888.92/oz overnight.

RMB said in its morning commentary that it's becoming increasingly evident that world central banks need to gear up for co-ordinated action to alleviate clogged money markets and to re-instil some sort of confidence, with Israel yesterday cutting interest rates in a surprise move, Australia cutting the day before and the Bank of England due to make their decision on Thursday.

"The ZAR is 'punch drunk' at this stage with lows and highs seen yesterday of 8.7000 and 8.9800 respectively, whipsawing viciously between the two levels. With risk aversion and emergings out of favour and the Nikkei closing well into the red this morning, the rand looks set to weaken further today," RMB said.

With the exaggerated moves seen in the rand lately the risk for further major weakness is a reality, they concluded.

I-Net Bridge