The rand was over 2% firmer against the dollar in early morning trade on Thursday as it tracked a stronger euro and the probability of a “risk-on” situation grew.
“Dow futures have bounced and we could have a risk-on type of day,” a local currency trader said.
“The euro is stronger too,” he added.
He put the dollar/rand in a range of 7.12 to 7.22 for the start of the session.
At 08:30 local time, the rand was bid at 7.1294 to the dollar from its previous close of 7.2752. It was bid at 10.1575 to the euro from 10.2740 before, and at 11.5177 against sterling from 11.7205 previously.
The euro was at US$1.4253 from US$1.4123.
Standard Bank said in a morning note that the rand, however, was still vulnerable.
“After Tuesday's brutal sell-off, the rand enjoyed a temporary bout of stability on Wednesday morning, recovering down to R7.07. However, when global risk aversion took grip in the afternoon, the currency started to weaken again.
“The SA bond market ignored the weaker rand, demonstrating just how the rand has decoupled from the bond market. Bond bulls seem to be ignoring the mounting imported inflationary risk associated with the weaker exchange rate, instead arguing that the SARB is likely to keep lending rates lower for longer because of sluggish demand and softer energy prices.
“Also, non-resident bond holders are still looking to take advantage of SA's relatively high yields in a country where the probability of default is low.”
Standard Bank added that gold had touched yet another record high yesterday but again this had failed to prevent the rand from weakening when global equity markets and other risky assets sold off.
“Risk aversion remains a function of the mounting concerns about the US economy and sovereign debt fears in Europe and the US amid growing speculation that France now faces a ratings downgrade.
“The bottom line is that the market doubts whether fiscal and/or monetary policymakers can get the global recovery on track and address the debt of the US and EU. Policy rates are already at record lows, and quantitative easing measures have failed to generate sustainable demand.”
Standard Bank still favoured an upside target of R7.38 in the short term, followed by a possible retest of R7.50.
“If the latter level is also breached, then R7.73 if not R7.80 would come into play.”
To the downside, R7.17 and R6.96 provided key support, but Standard Bank still favoured selling into rand strength (buying dollar dips).
“SA business confidence data disappointed yesterday, and we foresee another disheartening domestic manufacturing data release today - which would bode ill for the rand from a GDP differential perspective, especially given that growth dynamics are at the forefront of investors' minds at present and the SA economic recovery is lagging many of its EM peers.”
Meanwhile Dow Jones Newswires reported that the euro rebounded from early session lows in Asian trade on Thursday, led by a rally in regional stocks that caught many analysts by surprise given investors globally remained downbeat on the prospects for world growth.
The better tone also came despite a surprisingly weak Australia employment number. Australia's economy is viewed as a bellwether for world growth and the rise in unemployment to 5.1% from 4.9% prompted economists to predict further softening in the labor force.
But the Australian dollar quickly reversed its losses on the data release to reach a session high of US$1.0278 from a low of US$1.0120.
The euro, however, was unlikely to extend its gains much as sovereign debt problems in some European nations remained in focus, said Tomohiro Nishida, senior dealer at Chuo Mitsui Trust and Banking.
Also in focus was the pace of the US economic recovery. If US economic indicators continued to fall short of market expectations, that would “test the Fed's stance” on the monetary policy, Nishida said.
US trade data and weekly jobless data were expected to be released later in the global day. - I-Net Bridge
