The rand was flat against the dollar in early morning trade on Friday as it tracked a euro made steady by moves on Thursday to prevent a liquidity crisis in the eurozone.
"It's going to be another volatile day and we're standing by for more announcements coming out of the eurozone," a local currency trader said.
He put dollar rand in a range of 7.32 to 7.42 for the initial part of the trading session.
At 8.46am local time, the rand was bid at 7.3710 to the dollar from its previous close of 7.3775. It was bid at 10.2059 to the euro from 10.2323 before, and at 11.6348 against sterling from 11.6493 previously. The euro was at US$1.3850 from US$1.3865 before.
RMB analysts said in a morning note that markets had rallied sharply as global central banks stepped in to calm banking liquidity fears by promising unlimited US dollar funding and coincidentally foreigners returned as net buyers of SA bonds yesterday, taking up R2.3 billion.
Together, this had allowed dollar rand to retrace into the high 7.30s, with some further mild downside possible today. Underlying banking, economic and PIIGS [Portugal, Italy, Ireland, Greece, Spain] problems, however, remained unresolved socontinued volatility and risks of new highs next week could be expected.
"The ECB, BoE, BoJ and SNB will provide unlimited three-month USD funding to banks from October. This action is similar to what they offered during the heart of the crisis and again temporarily in May 2010 when the Greek problems first broke.
"It reduces the immediate squeeze for US dollars in the market, taking away a lot of the pressure for the US dollar to appreciate. The help for banks, notably those in Europe, is large, with some French bank share prices rallying over 20% yesterday.
"However, it does not alter the solvency issue and as was the case in the crisis, this will not necessarily open up the money markets as banks will continue to worry about counterparty risk."
RMB said attention now shifted to government policymakers as European finance ministers met, along with special invitee US Treasury Secretary Geithner, to discuss the European bailout fund. Urgent action was needed to stop the rot in Greece, kick European policymakers into agreement on how to act, and draw a line under the mounting European banking sector problems.
"Expect comments through the day and over the weekend. Late today we will receive the US University of Michigan consumer confidence data."
Meanwhile Dow Jones Newswires reported that the euro remained firm in Asia on Friday, holding onto almost all the gains it posted Thursday after the European Central Bank and other major central banks had announced coordinated efforts to pump dollars into European banks to avert a liquidity crisis.
Attention now turned to Europe's Economic and Financial Affairs Council (Ecofin) meeting later in the global day. Dealers and analysts said sentiment toward the euro could again quickly sour if European leaders failed to present clear plans to contain the fallout from the debt crisis in Greece and other fiscally weak European countries.
Thursday's dollar-funding operation might help soften the blow from the sovereign woes, but would not help clear up the underlying concerns over further contagion, analysts said.
"There is, of course, still caution over Europe," even though the coordinated funding move had for now cut into the dollar's recent strength to the benefit of the common currency, said Satoshi Tate, a senior dealer at Mizuho Corporate Bank.
UBS strategist Geoffrey Yu echoed that sentiment.
"Risk aversion related gains in the dollar - as the market begins to hoard liquidity -will probably be more limited in scope," he said in a report.
Yet given the persistent fundamental debt problems that had spawned the liquidity hoarding in the first place, "some White Knights for the euro zone would be a welcome addition," Yu added.
Investors should expect further palliative steps in the months ahead, as European authorities struggled to prepare the market for what many participants saw as an increasingly likely outcome--an eventual Greek default, said Win Thin, foreign exchange strategist at Brown Brothers Harriman.
"This latest dollar funding scheme addresses the symptoms but not the illness," which is that Greece is insolvent, Thin said. "We fully expect policy-makers are preparing quietly for a Greek default, and would look for more and more preparatory measures in the coming months."
