The rand slid to a two-week low against the dollar in noon trade on Friday, as it tracked a euro made jittery by remarks from the European Central Bank and the US Federal Reserve indicating that growth was slowing, which led to less demand for riskier assets.
"Dollar strength is feeding into the rand and there has been risk aversion with European stocks opening down this morning," a market analyst said.
At 11:40 local time, the rand was bid at R7.2592/$ from its previous close of R7.1748/$. It was bid at R10.0352/€ from R9.9730/€ before, and at R11.5691/£ from R11.4432/£ previously.
The euro was at $1.3826 from $1.3901 before.
RMB said in a morning note that it was difficult to discern the impact of central bank rhetoric on markets this week, given the numerous MPC [Monetary Policy Committee] meetings.
"The SNB's decision to cap CHF gains led to unease over a global currency war, while the BoE's refusal to resume quantitative easing inflamed fears of a recession in the UK. Several Asian economies, earmarked to tighten monetary policy due to mounting price pressures, opted to keep official interest rates on hold, raising concerns about a protracted slowdown in global economic growth."
RMB added that the European Central Bank's remarks were perhaps the most significant of the lot as they related to the broader eurozone economy and the handling of the sovereign debt crisis.
"The euro's slide against the dollar epitomises the market's reaction to President Trichet's downbeat assessment of regional growth, heightening expectations of rate cuts later this year."
The European Central Bank's failure to extend additional support to the European banking sector - despite strong demand for central bank funding and its apparent unwillingness to shore up peripheral bond markets - also dulled sentiment.
Its reluctance to expand its offering of unconventional policies highlighted the need for a coordinated governmental response as well as the swift implementation of the European Financial Stability Fund, RMB said.
In contrast to the European Central Bank, the US had provided another crutch to the ailing economy.
"We have long held that a sustainable improvement in the US labour market is an important precondition to growth. Despite a raft of stimulatory measures, including a temporary cut to payroll taxes, much needed employment gains have failed to materialise highlighting the fragility of the real economy almost three years after Lehman Brothers collapsed.
"Perhaps the newly proposed $450bn job creation bill, laid out by President Obama yesterday, can provide some respite to the struggling US consumer. If passed, the American Jobs Act could potentially add 3% to GDP but there is considerable doubt as to whether the plan will provide a fillip to growth since any windfall arising from the proposed tax cuts would probably be channelled into savings."
More importantly, the plan needed to be ratified by congress before one could start contemplating its impact on growth, RMB said.
"Endorsing the act could prove problematic after the debt ceiling debacle last month, which created an uproar in the market. Encouragingly, it appears as though the Republicans are softening their stance towards the Obama administration, in the wake of lower favourability ratings."
RMB added that like most risky assets, USD/ZAR could not escape the backlash from the flood of official statements, performing poorly relative to its commodity currency peers.
"A lack of event risk should lead to a tighter trading range today but movements are biased to the upside. Resistance is evident at US$/R7.25."
Meanwhile Dow Jones Newswires reported that in foreign exchanges, the euro was weaker versus the dollar.
"Federal Reserve Chairman Ben Bernanke didn't put forward any concrete measures to boost the economy in his speech on Thursday ... and Christine Lagarde, managing director of the International Monetary Fund, said on Friday that downside risks to growth across the world had increased and countries had to act."
