The rand slid against the dollar in early trade on Wednesday as risk aversion persisted and investors sought refuge in safe haven assets.
"The rand has shown a bit of false tranquility as it has now joined the rest of the world and has come under a bit of pressure," a local currency trader said. "But with exporters around we should see a slow move higher rather than a rampage," he added.
He said the dollar-rand had the potential to move to 6.88 or 6.90. "The euro is hanging in there, but if dollar-euro breaks $1.4150 then it has the potential to go a lot lower and the rand will follow gradually.
The trader put the dollar-rand in a range of 6.77 to 6.89 for the morning session.
At 8.33am local time, the rand was bid at R6.8322/$ from its previous close of R6.7877/$. It was bid at R9.6676/€ from R9.6159/€ before, and at R11.0955/£ from R11.0349/£ previously. The euro was at $1.4165 from $1.4175.
Standard Bank said in a morning note that gold and other safe-haven assets such as US bonds, Japanese bonds, the Swiss Franc and the Japanese yen were soaring on the heightened risk aversion associated with further evidence (yesterday's disappointing US consumer spending data) of slowing global growth and renewed Eurozone debt fears.
"The dollar enjoyed a relief rally yesterday after President Obama signed off an upwardly revised US debt ceiling and 10-year spending-cut programme. The fact that Moody's and Fitch have reaffirmed America's credit rating, albeit with a negative outlook, may have also encouraged dollar bulls even though S&P, which had called for greater spending cuts, has yet to give its ratings verdict."
Standard Bank added that as the US debt situation had been addressed, the attention had returned to the Eurozone's debt, this time Italy and Cypress.
Although the rand was falling victim to the broad-based dollar recovery, the rand had weakened more than most because of the latest wave of risk aversion.
"Except for the Australian dollar, the Czech krona and the Hungarian forint, the rand is the worst-performing currency on the week. The JSE is falling, in unison with global equity markets, and non-resident demand for SA bonds has dissipated in recent days, which means that SA is being starved of portfolio capital flows.
"Also conducive to a weaker rand was yesterday's local vehicles sales recording a slower growth rate in July than in the preceding months."
Standard Bank said there were no local data releases scheduled for today.
However, the rand could weaken further if today's European manufacturing and US employment data should disappoint and thereby fuel global growth fears.
"Now that R6.76 has been breached, we would be looking for a retrace to R6.86. If also eclipsed to the upside, R6.91 would come into play. But if global risk aversion dissipates (not our base case), a return to R6.65 would be foreseeable."
Meanwhile Dow Jones Newswires reported that the dollar rose against the yen on Wednesday in Asia as investors took a cue from weakness in the Japanese currency against the euro on the back of firm Chinese share prices.
The Shanghai Composite Index was up 0.1% as of 0450 GMT, and that prompted investors to cut holdings of the safe-haven yen and increase the euro instead.
But traders said such sentiment was unlikely to last long, meaning the yen might find itself rising again very soon. That was because investors were now focused on the US economic outlook which was increasingly pessimistic. European debt problems had not been solved completely yet either, they added.
Part of the reason why the yen didn't rise during Asia hours was investors were awaiting for comments from Japanese officials including Finance Minister Yoshihiko Noda and Prime Minister Naoto Kan as well as Bank of Japan Governor Masaaki Shirakawa who were meeting around noon to discuss economic conditions including the yen.
After-meeting comments were far from satisfying and unlikely to persuade investors to sell the yen for fear of an imminent currency intervention, dealers said.
The premier, after the gathering, told reporters that he was concerned about the yen and watching the currency closely. The remarks were nothing new as they had been repeatedly used by Finance Minister Noda in recent days. Senior vice finance minister Fumihiko Igarashi who was also at the meeting said the yen wasn't a main topic of the meeting.
"Oh, that's it? Is that all?" said Yuzo Sakai, a senior dealer at Tokyo Forex and Ueda Harlow who had speculated more aggressive comments from officials would follow.
"If that's all we have from the meeting, then we may see the yen rising again in today's European session."
Looking ahead, investors will pay attention to the US jobs report by Automatic Data Processing Inc. A Dow Jones poll of economists predicts the report would show the number of payrolls had increased by 105,000 in July.
If the data beat the consensus, the greenback might rise, but not much, said Bank of Tokyo-Mitsubishi UFJ senior analyst Sumino Kamei.
She said it was hard for the dollar to rise above Y78.00 in any case for now because investors would be waiting for Friday's non-farm payrolls data.
