The vulnerable rand recovered slightly on Thursday morning, after losing 2.5% against the dollar on Wednesday, when it reached a six-month low of 8.53, as concerns over the eurozone debt crisis continued.
Standard Bank in their morning report said a downgrading of Spanish sovereign risk, although not from one of the major ratings agencies, coupled with dashed hopes of further monetary stimulus out of China, was enough to send the rand plunging to a 2012 low.
“With commodity prices falling, equity markets under pressure and risk aversion on the rise, the rand seems primed for further weakness. In the current environment, any bad news is likely to aggravate the rand’s demise,” the bank said.
The bank added that expectation of a widening in the trade deficit was likely to see the rand extend its decline.
In another analysis of the eurozone crisis, Barclays Bank said it hoped rationality would prevail and Greece would remain in the euro area in the near term.
“The costs of an immediate Greek exit are still too high for either Greece or the euro area. A disorderly exit would lead to a massive run on bank deposits? a meltdown of the Greek banking system, and further aggravation of Greece’s large economic downturn,” Barclays observed.
At 8:42 the rand was bid at R8.5247 the dollar from Wednesday’s close of 8.5376, it was bid at R10.5624 to the euro from Wednesday’s close of R10.5564 and at R13.1905 against sterling from R13.2046 at Wednesday’s close. The euro was bid at US$1.2392 from Wednesday’s close of $1.2368.
“Yesterday just showed how much we depended on the euro. We are so tied with it that any bad news in Europe will affect South African markets. I think its more of the same today unless the euro finds some traction,” said a local trader.
Dow Jones Newswires reported the dollar and euro fell to fresh multi-month lows against the yen during Asian trading on Thursday as investors flocked to the Japanese currency amid a barrage of negative news from the eurozone, and analysts said the yen-buying was likely to increase.
The dollar breached its previous day low of Y78.86, its lowest level since Feb. 17, while the euro fell below key support at Y97.50 and neared its January 16 low of Y97.04.
Market participants flocked to the yen, seen as a safe-haven investment, as growing concerns about Spain's banking problems sent Spanish and Italian bond yields higher.
“As the European situation is growing increasingly severe, it's likely that yen-buying pressure will increase,” said Sumino Kamei, senior analyst at the Bank of Tokyo-Mitsubishi UFJ.
Uchida Minori, chief analyst at BTMU, said that, with dollar long-positions piling up before major indicators such as US non-farm payrolls and the ISM manufacturing report, participants may be adjusting their positions, temporarily weakening the dollar against the yen.
Traders said yen-crosses were being sold, and the market was flow-driven at month-end. The 200-day moving average technical support for the dollar was at around Y76.60, with stop loss orders seen near Y76.50, they said, which if breached could send the dollar lower against the yen.
As of 04:50 GMT, the dollar was at Y78.75 from Y79.05 late Wednesday in New York, according to trading platform EBS. The euro was at $1.2387 from $1.2367 and at Y97.55 from Y97.78.
Japan's finance minister ratcheted up his warnings against the rising yen on Thursday, but stopped short of hinting at any immediate direct market intervention.
“This is not reflecting the state of Japan's economy,” Jun Azumi said when asked about the yen's strength. “It is a little speculative.”
Still, traders say repeated warnings from Azumi suggest that authorities are increasingly concerned about the yen's impact on the economy.
“I wouldn't be surprised,” if the MOF conducts another round of yen-selling intervention at the current level, one dealer said, though he added that “the chance is still low.”
Looking ahead, the euro could weaken further if German retail sales and unemployment data scheduled for release later in the day come out worse than expected, said Junichi Ishikawa, forex analyst at IG Market Securities in Tokyo. - I-Net Bridge