The South African rand was hovering just below the psychological R6,00 per dollar level in late afternoon trade on Friday, after breaching this level a couple of hours earlier on the back of offshore dollar sales.
Market commentators said that the dollar-rand seemed to be finding support at R5,95, but that the rand’s firming trend remained intact and that a break below R5,95 could see it target R5,80.
At 16.08pm, the rand was quoted at R5,9550 per dollar from an overnight close of R6,1001 on Thursday and R6,0651 on Wednesday.
It was quoted at R7,4108 to the euro from a previous R7,5151 and at R11,1670 against sterling from Thursday’s R11,3240.
The euro was quoted at $1,2453 from $1,2356 late on Friday, while gold was quoted at $406,55 an ounce from a previous $403,85/oz.
The rand earlier touched R5,95 per dollar — its best level since June 18, 1999.
“Basically, we have seen a move through R6,00 this afternoon — a lot of investment banks were selling dollars and buying rands. The sales are rumoured to be on the back of an article by Goldman Sachs that the scrapping of exchange controls will see more foreign direct investment (FDI) coming into South Africa,” a London-based trader said.
He added, however, that there had not been as much follow through on the rand’s move firmer as had been initially expected.
After the rand’s initial move to R5,97, good demand for dollars was seen, which took the rand back to R6,03, he explained.
However, it firmed again after the release of worse-than-expected United States CPI figures.
“The US CPI figures were negative for the dollar, which is why the euro jumped up and the rand went below R6,00 again. The figures were very important and we expected the dollar to be sold off, but it is finding good support at around R5,95.”
The trader continued that the market seemed to be a bit short dollars, which was why the rand had not followed through as expected.
He asserted that should the rand break the R5,95 support level, the next major support on dollar-rand was R5,80. However, the rand might weaken again, depending on what this evening’s dollar movements.
A trader in Johannesburg expressed similar views.
“There is good dollar demand at around R5,95 and I think the rand will struggle there tonight. We’ve had a big move today considering the inactivity of the last week or so,” he said.
However, while he expected the rand to remain in a R5,95 to R6,00 range for now, he believed the rand’s firming trend remained intact.
“We are still going to have moves through important levels, after which the rand will tick up a bit before people start selling dollars again.
Exporters are lining up to sell dollars at lower levels.”
The rand last traded below R6,00 per dollar in October 1999.
Goldman Sachs said on Thursday that lifting exchange controls within two years would be most beneficial for South Africa’s economic growth, FDI and the rand, according to media reports.
Although the US CPI rose by 0,3% m/m compared with a consensus forecast of 0,2% m/m after May’s large 0,6% m/m gain, the core CPI edged up by only 0,1% m/m, the smallest increase this year, from 0,2% m/m in May. — I-Net Bridge