The rand was softer against the dollar in early morning trade on Tuesday as it tracked a jittery euro.
“The euro prophecies seem to be coming home to roost, however, given all that’s happening, the rand isn’t doing too badly,” a local currency trader said.
“If dollar rand hits 7.16, then we’re looking at 7.20 and then 7.25 — we’ll just have to keep an eye on the euro.”
The trader put the dollar rand range at 7.10 to 7.20 for the initial part of the trading session.
At 8.34am local time, the rand was bid at 7.1448 to the dollar from its previous close of 7.1111. It was bid at 10.0531 to the euro from 10.0122 before, and at 11.4709 against sterling from 11.4456 previously.
The euro was unchanged from before at $1.4063.
Rand weakening to continue
Standard Bank analysts said in a morning note that they expected the rand to keep weakening.
“Trading conditions were relatively light on Monday due to the US public holiday, but nonetheless the rand weakness persisted as a result of the risk-off trading environment and associated broad-based dollar strength.
“Yesterday’s softer than expected European manufacturing data served to reinforce global growth concerns, which saw investors scurry for safe-haven assets while the deepening European Union (EU) debt crises provided additional reason to sell the euro.”
Standard Bank added that although a number of participants were expecting some dovish remarks from the European Central Bank (ECB) and Federal Reserve chairperson this week, as well the possibility of some fiscal stimulus measures from US President Obama, risk aversion was expected to persist this week — even if the authorities tried to shore up sentiment.
“Consequently, we are recommending that participants remain short against the dollar and the yen in particular, but long in relation to the euro. More specifically we are looking to target R7.17 now that R7.09 has been breached to the upside and if that level is also breached then a move towards R7.30 becomes plausible within the week.
“If today’s local business confidence data and/or the day’s EU GDP and US Institute for Supply Management data disappoint, then the rand is likely to weaken.”
Slow progress
Meanwhile, Dow Jones Newswires reported that the euro tumbled to fresh multi-week lows against the dollar on Tuesday in Asia, with selloffs on the global equity market refocusing attention back on Europe’s multitude of debt woes.
Fresh jitters over the eurozone debt issue rippled through its banking sector, making investors wary of holding onto the euro. They fled to safe havens like the yen, the Swiss franc and the US dollar. In a reflection of investors’ desire for safe and liquid assets, the yield on cash 10-year US treasury notes dropped to a record low Tuesday in Asia. The benchmark yield hit 1.911%, its lowest mark in at least 50 years.
“The eurozone debt crisis could take several years to settle down, and market participants fretting about slow progress in the problem are becoming increasingly pessimistic about the euro,” said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking.
Europe’s beleaguered banking sector was battered over concerns about growth as well as lawsuits filed against 17 lenders on Friday by the top US federal housing regulator, alleging that the banks sold $196-billion of risky home loans over four years to Fannie Mae and Freddie Mac without adequately disclosing the risks.
Comments overnight by Deutsche Bank chief executive Joseph Ackerman that current conditions in Europe were reminiscent of 2008 also eroded confidence.
Concern
Emma Lawson, currency strategist at National Australia Bank, said the focus would remain on Europe, with finance ministers meeting on Friday over a collateral agreement between Greece and Finland.
“This has created some concern over the cohesion of the bailout package,” she said.
A watch was also being kept on Italy, where austerity measures were currently being debated in parliament. Italian debt has been sold off sharply recently, “so the ability to get this through Parliament is key right now to avoid a further deterioration”, Lawson added.
The yen was relatively quiet during early Asia trading.
The Reserve Bank of Australia kept its cash rate target unchanged at 4.75%, as expected, due to rising risks to both the US and European economies. Still, the RBA was maintaining a hawkish tone, saying inflation remained a problem and that national income growth was growing on the back of high commodity prices. — I-Net Bridge