The South African rand broke above the R7 per dollar level just before 2pm on Tuesday as geopolitical concerns continued to dampen sentiment towards the local unit. While market analysts said it was too soon to call an end to the rand’s firming trend seen over the past couple of years, the local unit could be in for further weakness in coming days.
At 2.02pm, the rand was quoted at R7,0326 to the dollar from a New York close of R6,9550 on Monday, R6,6688 on Friday and R6,5705 on Thursday. It was quoted at R8,9423 against the euro from a previous R8,8445 and at R12,9682 against sterling from Monday’s R12,8149.
The euro was quoted at $1,2729 from $1,2750 late on Monday in New York, while gold was quoted at $423,45 an ounce from a previous $424,88/oz.
“I think with the current sentiment, guys are buying dollars into dips. We saw demand for euro-rand triggering yesterday’s [Monday’s] move weaker and today importer offers at R6,82 were always going to cap the downside,” a market analyst said.
He continued that he was expecting the rand to weaken to about R7,16 to the dollar later on Tuesday or on Wednesday.
The analyst said that the demand for euro-rand on Monday had been due to a big order in the market. While there were exporters selling dollars, there was nothing substantial enough to bring the rand lower (firmer).
“We had a short squeeze from foreigners who tried to pick the top of the rand’s range. There were stop losses just above R7 that the rand is pushing through now.”
The analyst said that negative sentiment ahead of the upcoming election formed the backdrop for the rand’s depreciation.
“Land is an issue, no matter how pretty government makes it look and guys are concerned … There is a lot of uncertainty and one must consider that if one is looking for a commodity currency, there are alternatives like the Australian dollar.”
He asserted that the worsening crisis in Zimbabwe also represents a geopolitical risk and the government is perceived to be doing very little about it.
“There is also a general perception that the dollar has gone a long way and at some point is going to recover,” he added.
“The rand will have to move much higher above R7,30 to R7,40 before we can start talking about a full-scale reversal in the trend, but for now I’m still favouring more rand weakness,” the analyst concluded.
After being the world’s worst-performing currency against the dollar in 2001, it was the best performer in 2002 and the second-best after the Australian dollar last year.
Last Tuesday morning, the rand traded as low as R6,23, but weakened considerably later in the day after an article appeared in the New York Times about the land issue. There were also concerns about the upcoming elections, according to market commentators.
The euro weakened on Monday following European Central Bank President Jean-Claude Trichet’s expression of concern on Monday about the European currency’s recent fast-paced ascent. — I-Net Bridge