The rand was slightly softer against the dollar in noon trade on Friday as it tracked a euro made jittery by worries surrounding Greece and as markets awaited key US non-farms payrolls data due out this afternoon.
“The news out of Greece hasn't been good and of course there's the payrolls data,” a local currency trader said.
“The market is always thinner ahead of payrolls data - it is flow driven at the moment, taking direction from equities,” he added.
At 11:39 local time, the rand was bid at 7.0127 to the dollar from its previous close of 6.9956. It was bid at 9.9923 to the euro from 9.9712 before, and at 11.3481 against sterling from 11.3092 previously.
The euro was at US$1.4248 from US$1.4261 before.
Standard Bank analysts advised in their note on Friday morning to buy dollars, “even if today's payrolls data increases the probability of more Fed monetary accommodation.”
They added that rand bulls had failed to breach R6.96 to the downside yesterday as global risk appetite moderated on the eve of August's US employment report.
“If today's payrolls number is worse than expected, then we would expect risky assets such as emerging market currencies to come under renewed selling pressure due to the associated negative implications for global growth.”
The caveat to that argument was that if today's US employment numbers were poor, the likelihood of an additional monetary loosening from the Fed over the coming weeks becomes that much greater.
“However, although speculators have over the past two years made use of the accommodative global monetary environment to chase high-yielding and commodity-based currencies, we are not convinced that this trend will continue this time round, because it seems as if even these die-hard speculators are becoming increasingly concerned about the lack of underlying global economic activity and the threat of an asset bubble collapse, especially if we have a liquidity crunch in Europe as a result of the region's intensifying debt crises.”
Hence, the analysts believed that the rand remained vulnerable to the dismal global growth outlook even if the Fed injected more liquidity into the system “and we would thus be looking to take advantage of the recent short covering in the rand to accumulate dollars, with an initial upside target of R7.09 followed by R7.17.”
“In fact, we would only refrain from purchasing dollars today if the US labour data proved to be considerably better than expected, because in such a case rand bulls would probably look to breach R6.96 to the downside with a target of R6.82 in mind.”
Meanwhile Dow Jones Newswires reported that the euro was hit by negative news on Friday when it was revealed that talks between Greece and a visiting troika of international inspectors had been suspended amid a dispute over the country's ability to meet its deficit targets.
The delegation of European Union, International Monetary Fund and European Central Bank officials was expected to return in about 10 days after the Greek government had prepared the draft outlines of its 2012 budget, a Greek official said.
Investors then headed to the safety of gold and bunds.
At the same time, jitters ahead of the release of US nonfarm payrolls added to the negative mood.
Traders said this month's US payrolls report had taken on even more significance than usual, as the outcome could trigger the Federal Reserve's next move with regard to monetary policy.
“A below-par nonfarm payrolls figure will cement expectations that the Fed is going to act sooner rather than later,” said Markit.
“But the market is not as sure as it was about the efficacy of [quantitative easing], so risky assets could still suffer from a negative surprise. Conversely, a positive surprise could be overlooked as it might delay action from the Fed,” it added.
The consensus was for nonfarm payrolls to show an 80,000 increase in August, following a 117,000 rise the previous month. - I-Net Bridge
