South Africa’s rand advanced against the dollar early on Thursday, taking advantage of the US currency’s weakness after a surprisingly large US rate cut, but traders said it may struggle to make further headway.
At 0530 GMT, the rand was four cents stronger at 9,85
against the dollar — a five-month peak. But it softened against the euro, slipping to 9,90 from 9,85 at Wednesday’s close in Johannesburg. The dollar fell to a new three-month low against the euro in Asia on Thursday after the US Federal Reserve slashed its key
interest rate by 50 basis points, signalling it may be worried about the strength of the US economy.
”This is largely an overnight move, a lot of guys like the long rand trade but it might struggle to get further than 9,85,” Barclays analyst Leon Myburgh said. But he added that if the unit managed to break that level, it was likely to target 9,70.
The rand has appreciated by more than 21% against the dollar so far this year and 13,4% on a trade-weighted basis, wiping out much of its losses in the final weeks of 2001 when it plunged by a historic 37% against the greenback. Traders are predicting further gains in the weeks ahead, as sentiment shifts in favour of South Africa and the markets take advantage of the yields offered by its high interest rates. Some are even forecasting a break of 9,67/dollar — the rand’s best level for 2002, reached during May. But the rally has been largely driven by offshore banks, and many local traders with memories still fresh of the rand’s slump in 2001 are wondering how long the trend can continue.
Bonds gained on the back of currency firmness. Yields on the longer-dated R153 bonds, due 2010, fell 14 basis points to 11,50%. The shorter-dated R150 due 2005 was at five basis points firmer at 11,86%. – Reuters