The rand was flat against the dollar in early trade on Tuesday, but retained a softer tone, as it tracked a jittery euro and investors turned towards safe haven assets.
“We see dollar rand trading in a range of 6.94 to 7.00 today and we expect the local currency to keep following the euro,” a local trader said.
At 08:40 local time, the rand was bid at 6.9751 to the dollar from its previous close of 6.9725. It was bid at 9.8345 to the euro from 9.8282 before, and at 11.1091 against sterling from 11.1055 previously.
The euro was at US$1.4091 from US$1.4108.
Standard Bank analysts said in a morning report that the rand had weakened further for global and domestic reasons. Safe-haven assets such as the Swiss franc, gold and US treasuries were near all-time highs, illustrating just how uncertain the markets were.
“Volatility is climbing, credit spreads are widening, and risky assets such as equities and emerging markets are selling off.
“These market jitters stem from the fears surrounding the Eurozone and US debt as well as insecurity about the sustainability of the global economic recovery.”
Standard Bank said the rand - which in itself was regarded by many as one of the best barometers of global risk appetite - had been particularly hard hit.
“It has weakened against all of the active trading currencies over the past week and, year-to-date, is the second-worst-performing currency after the Turkish lira.”
SA's ongoing industrial action was adding to the rand's selling pressure and, although there had been hopes that the week-long fuel strike would be resolved yesterday, negotiations would continue today.
“Yesterday, the rand breached the psychological level R7.00 on the bid chart, which opens the door to R7.08. We also suggested looking to target R9.98 on EURZAR once R9.80 was breached to the upside, while in relation to the pound, we maintain that if we went through R11.19, a move to R11.29 would be on the cards.”
Meanwhile Dow Jones Newswires reported that in the euro held onto small gains against the dollar in Asia Tuesday ahead of the European Union's emergency debt crisis summit Thursday, while intervention fears underpinned the dollar against the yen.
Persistent jitters over European sovereign debt concerns and dovish remarks by Australian's central bank on its rate outlook had kept market sentiment risk averse, while caution ahead of Thurday's euro zone meeting means traders were wary of building up fresh short positions on the single currency.
“The meeting probably won't offer any concrete measures,” Dai Sato, senior vice president at Mizuho Corporate Bank. “In that case, the euro could be sold 'on the fact',” he added.
The currency market was also likely to keep a close eye on yields on Spain and Italy's 10-year government debt, said Junya Tanase, chief currency strategist at J.P. Morgan in Tokyo.
“The focus is on whether they both will rise above 7%”, Tanase said, referring to the level regarded as “a watershed” for raising funds through the market.
Meanwhile, the dollar was supported against the yen by speculation over possible market intervention, after Japanese Finance Minister Yoshihiko Noda reiterated that recent yen moves were “one-sided.”
But he stopped short of threatening intervention, saying only that the ministry will “watch developments closely.”
BOJ Deputy Gov. Hirohide Yamaguchi also reminded markets of the intervention threat, saying the central bank is ready to act against the yen rise if it starts to seriously damage Japan's exports, profits and sentiment.
Both officials made their comments during a parliamentary session Tuesday.
The dollar's upside was capped by selling interest among Japanese exporters and retail investors who clung to long positions, traders said.
“At some point in the future, the dollar will probably fall since its upside is steadily getting restricted,” said Mizuho's Sato.
He said intervention was possible as long as the dollar stayed below Y80. But intervention alone might not be enough to reverse a weak dollar unless US Treasurys yields rose. - I-Net Bridge
