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US inflation data reverse rand's slide
March 17, 2006
By From Reuters and AFP
Johannesburg - The rand pulled off early troughs yesterday as the dollar slipped on relatively tame US inflation data for February, which dampened expectations of more rate hikes by the Federal Reserve.
After importer demand for dollars sent the local unit to a session low of R6.245 a dollar, it recouped some of the losses to close 0.9c stronger at R6.1815.
"There was lots of importer demand for dollars in the morning, which pushed it [the rand] weaker. But then dollar weakness kicked in after the US data," said one trader with a London-based bank, referring to the release of relatively tame US consumer inflation data.
As US food costs moderated and the price of energy products posted big declines, the labour department said its closely watched consumer price index rose just 0.1 percent last month after jumping 0.7 percent in January, softening expectations of how far US interest rates would rise.
As US interest rates look to be nearing their peak, focus for the dollar could begin switching away from rate differentials and back towards US structural deficits. Data this week showed a record current account deficit of $804.9 billion for 2005.
Earlier in Europe, statistics agency Eurostat said annual inflation in the 12-nation euro zone eased lower in February to 2.3 percent from 2.4 percent in January. This caused the euro to dip to $1.1975 from a two-week high of $1.2077 after two days of data deemed negative for the US currency.
After the US data was released the euro popped up to a new six-week high of $1.2147. The currency of South Africa's main trade partner often sets the trend for the rand, which has firmed by about 2 percent on the dollar so far this year.
Government bonds were marginally firmer, drawing strength from the rand and US treasury debt prices, which rose on the mild inflation data.
The yield on the most-traded R153 bond was 1.5 basis points firmer at 7.225 percent. The yield on the longer-dated R157 bond strengthened 1 basis point to end at 7.375 percent.
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