The rand firmed against the dollar and sterling, but lost ground against the euro, in mid-morning trade on Thursday, eyeing a crucial vote in Germany to extend the scope of the eurozone’s rescue fund.
By 10:03 local time, the local currency was trading at R7,857 against the dollar, compared to R7,9121 at the JSE’s close on Wednesday. It weakened slightly at R10,7327 against the euro, compared to R10,7294, bit gained against the sterling at R12,3071 compared to R12,3386 previously.
In a currency note, Rand Merchant Bank analysts John Cairns and Nema Ramkhelawan-Bhana said immediate prospects for the rand hang on the German parliamentary vote on extending the Eurozone bailout fund, expected at 11:00 today.
"Multi-day/week the outlook remains the same; risk is biased to the upside and any rand gains will be slow, and losses rapid," Cairns and Rakhelawan-Bhana said.
The German vote will follow that of the Finnish parliament on Wednesday, which voted overwhelmingly to allow the European Financial Stability Fund (EFSF) to give precautionary loans to countries and buy sovereign bonds when needed, amongst others.
This left 16 member states still to vote on the extensions, agreed to by eurozone leaders in July.
"Approval of the extension of the bailout plan is assured, given it is also supported by the opposition, but all eyes are on the extent of the revolt in the ruling coalition against Chancellor Angela Merkel for what it says about the prospects for the next bailout plan. Expect volatility after the vote, with two way risks on the rand," Cairns and Rakhelawan-Bhana said.
Standard Bank analysts Michael Keenan, Nomvuyo Guma and Shireen Darmalingam said in their morning note the German vote might prove a non-event for the rand unless the increased EFSF proposal is not ratified, which could lead to risk aversion soaring and rand weakness.
"However, this afternoon’s US GDP print will likely be today’s highlight, because this data and tomorrow’s Chinese manufacturing figure are likely to set the tone for the global growth outlook for the coming weeks and, if the outlook deteriorates further, we’d expect the rand and other risky assets to remain under pressure," Keenan, Guma and Darmalingam said.
