The South African rand was firmer against the dollar in early trade on Friday as the market digested Thursday afternoon’s surprise 50-basis-point rate hike to 7,5% by the South African Reserve Bank monetary policy committee (MPC). The rand’s move came despite weakness in the euro and gold.
At 8.55am, the rand was bid at R6,7206 per dollar from an overnight close of R6,7828. It touched an 11-month worst level of R6,8415 on Thursday morning.
The rand was bid at R8,5003 to the euro from a previous R8,5839 and at R12,3962 against sterling from Thursday’s R12,3881.
The euro was bid at $1,2647 from $1,2650 late on Thursday and $1,2802 late on Wednesday, while gold was quoted at $609,25 a troy ounce from a previous $613,90/oz and Wednesday’s $626,90/oz.
A currency trader said the rand was firmer as the market digested the rate-hike news and because the market was a little bit long dollars.
“Dollar-rand ticked up last night (the rand weakened) and this morning everyone is trying to sell it lower,” he said, adding that players were targeting stop losses at R6,68 to R6,69.
Econometrix Treasury Management (ETM) said in its morning commentary that the rand’s reaction to the rate increase had been similar to that of the Turkish lira the day before.
After Turkey’s central bank announced a 175-basis-point rate hike, the lira weakened initially but strengthened again as the market absorbed the implications of the increase on consumer spending, the current-account deficit and the general currency support a rate hike provides, ETM said.
It noted that the rand’s strength came despite the fact the Australian and Canadian dollars had sold off due to weakness in commodities.
ETM cautioned, however, that one could not ignore the negative implication of the hike on the bond and equity market, which could limit the rand’s ability to strengthen further.
The focus for the day is likely to be United States trade data released at 2.30pm. The US trade gap is expected to have widened to $64,8-billion in April from March’s $62-billion, according to a survey of economists by MarketWatch. — I-Net Bridge