Rand at 8.29 against the US dollar

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The rand was slightly firmer in early trade on Thursday as global risk sentiment improved and there was a possibility of European Union leaders finding a solution to resolve the eurozone debt crisis.

At 08:43 the rand was bid at R8.2944 to the dollar from Wednesday’s close of R8.3026. It was bid at R10.4063 to the euro from its previous close of R10.4397 on Wednesday and at R12.8153 against sterling from R12.8583 at its previous close. The euro was bid at US$1.2555 from Wednesday’s close of $1.2572.

“The market improved overnight‚ it looks like there will be a package for the Spanish banks and this has improved the sentiment in the eurozone. There is still uncertainty in that region and the markets will play a cautious game‚” Bridget Taylor of Nedbank Dealers said. “The local data coming later in the day will not have much impact‚ I think the idea at the moment is to maintain the euro debt crisis.”

Barclays Bank said the European Central Bank (ECB) still had scope to introduce ultra long-term refinancing operations at a future stage if needed but evidently in the current environment‚ and based on yesterday’s communication‚ it wished to keep its powder dry.

Standard Bank said in its morning report that ECB president Mario Draghi delivered the tonic markets needed yesterday‚ with global stocks and commodity prices rallying in the wake of the ECB meeting.

“Risk appetite appears to have picked up‚ with the rand in recovery mode and the euro also on a firmer footing this morning. Draghi said yesterday that officials stood ‘ready to act’ as the fallout from the debt crisis worsened.”

With the rand having moved 40c in the past three days‚ the Standard Bank reiterated that the recent volatility would remain a feature for as long as markets remained uncertain over the future of the eurozone‚ with the upcoming Greek elections (June 17) a particular focus.

The bank also said local data due later in the day were unlikely to affect the rand seriously‚ “although the manufacturing data (13h00) will be closely watched for signs of a further cooling in economic growth”.

Dow Jones Newswires reported that the euro slipped against the dollar in Asia on Thursday as investors interpreted the outcome of the ECB policy meeting overnight as indicating the authority may be reluctant to take decisive action to tackle the region’s debt crisis.

The ECB kept its key policy rate unchanged at 1.0% Wednesday‚ although its head‚ Mario Draghi‚ suggested more easing may be in store.

“The ECB failed to deliver a positive surprise‚” said Atsuo Ogaki‚ head of FX Japan at Nomura Securities.

At 04:50 GMT‚ the euro was at $1.2562 down from a high of $1.2587 marked in New York after the ECB meeting. Against the yen‚ it was at Y99.77 from Y99.66.

“I was surprised that the euro rose more than what I had expected on the ECB outcome. But the follow-through moves proved it was just investors’ position adjustment‚” Ogaki said.

Investors said there was more downside potential for the common currency in the run-up to Greece’s election later this month.

The dollar‚ meanwhile‚ was at Y79.42 from Y79.21. The ICE Dollar Index‚ which tracks the dollar against a basket of currencies‚ was at 82.274 from 82.150.

Investors will pay attention to remarks by Federal Reserve chairman Ben Bernanke due later in the day for hints of additional Fed easing.

Trading in the dollar against the yen was subdued‚ as investors remained cautious about possible Japanese yen-selling intervention. But not many Tokyo investors believe the risk is especially high at the moment.

“Intervention is unlikely with the dollar at least above Y77.50‚” Ogaki said.

Elsewhere‚ market participants will pay attention to Switzerland’s foreign currency reserve data for May‚ due at 09:00 SA time.

JP Morgan’s chief Tokyo currency strategist‚ Junya Tanase‚ expects the figure will increase by at least 20 billion Swiss francs due to continued intervention by the Swiss National Bank to curb the currency’s rise. But such an outcome would mean franc buying pressure is strong and the Swiss central bank may be unable to hold the line through indefinite intervention.

“That will increase the risk of the euro falling sharply below CHF1.20‚ the SNB’s key defence line‚” Mr. Tanase said. - I-Net Bridge