South Africa’s rand firmed against the dollar on Wednesday, but traders said activity was muted as the market awaited the outcome of a policy meeting of
the US central bank’s Federal Open Market Committee.
At 1140 GMT, the rand traded at 9,90 against the
dollar compared to 9,953/dollar on Tuesday and an opening rate of 9,955/dollar. The rand was still well off its best level of 9.855 reached on Tuesday — which was a five-month peak — and an intraday high of 9,895/dollar. ”There was some offshore activity which moved the rand stronger. Also, the trend is still very much in favour of the rand,” one senior trader told Reuters.
”Activity has been a little muted as the market watches the Fed,” another trader said. In a bid to ward off some of the chill settling over the
slow-moving US economic recovery, Federal Reserve policymakers were widely predicted to cut US interest rates to fresh four-decade lows on Wednesday. A decision was expected to be announced at 1915 GMT.
Traders said the rand level of 9,85/dollar tested on Tuesday would prove tough to break on Wednesday. The rand advanced to its best level in more than five months on Tuesday, testing 9,85/dollar for the first time since early June, with traders predicting further gains in the weeks ahead.
Traders say the offshore-driven rally seen in the past month was fuelled in part by the weaker dollar and attractive yield differentials offered by South African interest rates. But traders also cited the fact that major players had to cover unhedged options which they wrote when the rand was descending rapidly to a record low of 13,85/dollar late in 2001.
The volatile unit has confounded sceptics so far this year, appreciating by more than 21% against the dollar and 13,4% against a trade-weighted basket of currencies. Many local players — still unsettled by the rand’s 37% plunge against the dollar last year — are puzzled by the trend, which analysts say is fuelled in part by a shift in sentiment in favour of South Africa.
Recent weakness in the US unit, which hit parity against the euro again on Tuesday, is also a factor.
Bonds gained on the back of currency firmness. Yields on the longer-dated R153 bonds, due 2010, were traded at 11,57% versus 11,64% on Tuesday. The shorter-dated R150 due 2005 was at 11,87% compared to 11,93% on Tuesday. – Reuters