The rand eyed 6.90 against a soft US dollar in morning trade on Wednesday, tracking the performance of the euro against the greenback.
At 9.09am local time the rand was bid at R6.9499 to the dollar from R6.9340 at the previous close. It was bid at R9.4566 to the euro from R9.4281 before and at R11.0053 against sterling from R10.9680 at its previous close.
The euro was bid at USD1.3619 from USD1.3569 overnight.
"The dollar is being lashed again. There might however come a point where we say the rand is stretched, but for now the target is 7.90 against the dollar and is dependent on whether the euro breaks through 1.37 (against the dollar)" a local dealer said.
RMB said in a morning report that US economic data continues to point to a slowdown but not a collapse in growth.
"Fears of a double-dip in turn have eased but the big issue now is whether the weakness will spur fresh monetary stimulus - the so-called QE2. A Fed official yesterday stated that this is by no means a done deal but the market continues to see it as likely. With the ECB in contrast saying that they are unwinding their non-standard support to the market, the US dollar is the dog for the moment - even though the debt problems in the PIGS continue to escalate," the analysts said.
RMB said that the resulting wholesale sell-off in the US dollar has driven US dollar/rand lower - down to 6.95 yesterday - as euro/US dollar broke 1.3500. "Talk is now for 1.3700 on the latter and, if this plays out, the drive lower on US dollar/rand will remain relentless."
"Note that this is a US dollar story. We certainly do have rand positives; Wesizwe Platinum is in talks for USD900m of funding from China - taking the probable net inflows from the proposed FDI deals in the past few months to over USD8bn," the analysts said.
RMB also pointed to next week's release of the September reserves data to see how aggressively the SARB has responded to the break of 7.20 and 7.00.
"At present though it's all a euro/US dollar story and for now the dog is beating the PIGS in the race to the bottom and US dollar/rand is falling as a result," the group said.
Today's local inflation data will be closely watched on potential bets of yet another 50bp cut in the cycle.
Dow Jones Newswires reported that the dollar's woes came after a report overnight added to signs of distress in the world's biggest economy.
The index of consumer confidence by the private research group, the Conference Board, fell to 48.5 in September from a revised 53.2 in August, missing expectations for a 52.0 reading.
Some analysts said the foreign exchange market is moving back to a focus on interest rates, to the dollar's detriment.
Since the financial crisis of 2008, the dollar has tended to benefit from weak data in a "flight-to-quality" move, principally into US Treasurys. Now, the poor US figures are having the opposite effect, sending money abroad and the dollar lower. - I-Net Bridge
