Focus on Fed keeps rand steady
October 31, 2007
By Jacqueline Mackenzie
Johannesburg - The rand was steady in early trade on Wednesday as the attention of markets world wide turn to the statement on interest rates by the US Federal Open Market Committee.
By 8.30am the rand was bid at R6.5362 per dollar from its overnight close of R6.5321. It was bid at R9.4442 to the euro from a previous R9.4416 and at R13.5524 against sterling from R13.5354 before.
The euro was bid at $1.4436 from $1.4441 overnight, while gold was quoted at $783.80 a troy ounce from its previous close of $781.25.
"The rand is still in consolidation mode after its big move down. There wasn't much in the mini-Budget statement for the rand yesterday, so now we are waiting for the Fed announcement," a local currency trader said.
He added that the rand should trade in a R6.54 to R6.58 range to start with, with a broader range of R6.54 to R6.62.
ETM analysts said in their morning report that yesterday's MTBPS reaffirmed government's commitment to creating a sustainable growth outlook not entirely dependent on the commodity super cycle. Growth in 2007 and 2008 were revised downward, however, growth expectations remain robust.
"With the local economic environment under control and the economy reasonably well positioned to manage the infrastructural development induced imbalances, South Africa looks a stable investment prospect albeit that growth in not rising to the levels required," they said.
Later today Sars releases trade data for September, with South Africa's foreign trade balance with its non-Southern African Customs Union (SACU) trading partners expected to have decreased slightly to a R6.2 billion deficit in September from the R9.1 billion deficit recorded in August, a survey by I-Net Bridge has found.
Forecasts among the nine economists surveyed varied from a R2.3 billion deficit to a R7.5 billion deficit.
Analysts noted that not much reprieve can be expected in September, with exports still failing to stem the incoming tide of imports.
DJ News reports that the euro reached yet another record high against the dollar in Asia on Wednesday for the fourth straight session as players favoured the common currency in anticipation of a further closing of the interest rate gap between the US and Europe.
"The Federal Reserve is in a rate-cutting cycle, whereas the European Central Bank does not rule out additional tightening," said Yuji Saito, a senior dealer at Societe Generale.
A majority of players expect the Fed to cut its federal funds rate by 25 basis points to 4.5% later in the global day and continue slashing rates in the months ahead.
Meanwhile, Axel Weber, a European Central Bank governing council member, told The Wall Street Journal that "risks to price stability have increased" in recent weeks, and thus, further rate hikes cannot be ruled out. Currently the central bank's key policy rate stands at four percent.
In addition, players foresee an upbeat economy in Europe, in stark contrast to an unclear outlook for the US.
"The dollar will remain weak against the European units at least until the year end," said Toru Tanaka, a senior dealer at Mitsubishi Corp.
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