Rand slightly weaker on euro
June 2, 2009
By Palesa Motloung
Johannesburg - The rand was slightly weaker and crept back above the R8.00 level in early morning trade on Tuesday in what a local trader said was a movement directly on the back of a softer euro.
At 9.01am the rand was bid at R8.0580 to the dollar from an overnight close of R7.9961. It was bid at R11.3711 against the euro from a previous R11.3150 and at R13.2058 to the pound from R13.1450. The euro was bid at $1.4128 from $1.4154 overnight.
RMB analyst John Cairns in his forex report pointed out that in an extraordinary statement, Governor Mboweni appeared to have signalled that the Reserve Bank was unhappy with the current rand strength.
The governor said that the rand "is fairly elevated" and that these "levels may be unwelcome".
Cairns said that this was the second comment regarding rand strength from the Governor in as many weeks.
He noted that in May the published transcript of a speech he gave included comments that the Sarb forecasts the real effective exchange rate to weaken 4.5 percent over the rest of the year.
"While the Governor's comments are often, how should we put it, misinterpreted by the markets, these seem deliberate enough to be taken seriously," said Cairns.
"In fact, his words take on additional meaning given how infrequently he makes any comments at all on the rand.
"The result is that we finally seem to have reached the end of Sarb tolerance for rand gains.
"Whether we have actually already seen Sarb reserve accumulation will only be shown in the reserve figures on Friday, but clearly action is likely if the rand rally continues."
Cairns said that this didn't preclude further gains, but would make it more difficult and, on the basis of past experience, gains would not last unless global market gains were overpowering.
"The Sarb almost certainly doesn't have an exact level in mind for the rand but, for now, we should probably expect meaningful reserve accumulation at levels below 8.00 on dollar/rand.
"Expect trade around this level today given a lack of any real event risk," said Cairns.
"The rand is slightly weaker and that is directly on the back of the euro trading softer," a local trader said.
Cairns called the rand to be in a range of 7.90 to 8.10 for the day.
"There were numbers out yesterday that may indicate a return to risk. Locally, the PMI printed higher and that lent support to the rand.
"The world seems to think that we are stepping out of the recession."
"However, I think that we may see a sell off at these levels. We are looking to see the rand/ dollar move lower," he said.
Dow Jones Newswires reported that the euro faces a test of faith as the market waits to see if support around $1.4035 will hold up.
If so, investors could step in with long EUR/dollar positions, dealers said.
They also noted that the pound seems top-heavy at current levels without a downward correction.
Dealers in Tokyo said Asian hedge funds and exporters were buying the yen amid a general trend for US dollar weakness.
However, analysts at Brown Brothers Harriman warn: "The risk for the currency markets is that momentum indicators are in overbought territory."
They add that a real pullback may wait until the monthly US payrolls data out on Friday, which is expected to show another large loss.
"It's gone so far, so quickly, people are just hesitant, and some are even taking profits," said Tyson Wright, senior position trader at Custom House in Victoria, BC.
"People are a little wary about stocks being at these high levels."
Some consolidation for the riskier currencies wouldn't surprise, said BNZ strategist Danica Hampton.
"From a fundamental perspective, our analysis shows the New Zealand dollar as overstretched, the rally has outpaced the increase in risk appetite, New Zealand commodity prices and the New Zealand/US three-year swap".
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