The rand opened steady at softer levels against the dollar on Wednesday, marking time ahead of the outcome of a policy meeting of the US central bank’s Federal Open Market Committee.
At 0645 GMT, the rand traded at 9,955 against the
dollar, little changed from a Johannesburg close of
9,953/dollar, but well off its best level of 9,855 reached on Tuesday — which was a five-month peak. 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.
”Its trading within range,” one trader said. ”The market is waiting fir the decision on the US rates, and after that we should likely see a new direction for the rand.” Traders said the rand level of 9,85/dollar tested on Tuesday would prove tough to break on Wednesday. ”The rand had been somewhat sidelined today by the Fed meeting,” one trader said, adding that the currency was trading at a range of 9,92/93 to 9,98/99 and expected to slide back to
the 10 level if that was maintained.
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. Yields on the longer-dated R153 bonds, due 2010,
were also little-changed at 11,65 from a close of 11,64% on Tuesday. The shorter-dated R150 due 2005 was at 11,94% compared to 11,93% on Tuesday. – Reuters