Rand at 8.39 against the US dollar

The rand was stronger in late trade on Wednesday with foreign investors preferring emerging market currencies to the euro‚ due to doubts mounting over Germany’s commitment to saving the euro.

Large exporters were fairly active in the local market with subsequent foreign currency payment inflows and continued inflows into the local bond market also leading the currency stronger.

“The main driver the past couple of days has been the upcoming EU summit on Thursday and Friday‚” a local trader said.

“The market is stronger and headline driven. We have seen quite a few large export today‚ the reason for the stronger rand and local bonds were also bought quite aggressively‚” the trader said‚ adding that the rand could reach R8.35 to the dollar in the short term.

“Markets are subdued ahead of the summit and no major move in the currency is expected‚” he said.

At 15:49 the rand was bid at R8.3971 to the dollar from its previous close of R8.4233. It was bid at R10.4563 to the euro from its previous close of R10.5208 and at R13.0611 against sterling from R13.1662 before. The euro was bid at US$1.2458 from its previous close of $1.2491.

Absa Capital said in its June economic outlook today that the rand would remain volatile in the near-term‚ but should claw back lost ground in the coming year as global risk aversion lifted and foreign portfolio inflows remained strong.

“The currency is likely to decouple from the euro and firm to R7.65 to the dollar over the next 12 months‚ Absa Capital's currency strategist Michael Keenan said.

Dow Jones Newswires reported that the euro was trapped in an extremely tight range in European trading hours on Wednesday as investors failed to identify a clear direction ahead of this week’s European Union summit in Brussels.

Few market-watchers expected any major breakthrough in the region’s long-running debt crisis at the two-day meeting. Still‚ just in case there were any positive or negative surprises‚ traders were holding steady for now‚ leaving most major currencies range bound‚ with only the Israeli shekel standing out as a big mover‚ continuing its path lower.

“We are seeing a period of consolidation in the forex market as investors have little appetite to put on positions before seeing the summit outcome‚” said Michael Sneyd‚ a currencies analyst at BNP Paribas in London.

Most smaller currencies‚ including those in emerging markets‚ traded steadily‚ in line with the generally cautious market sentiment. But the Israeli shekel continued its slide‚ sticking to three-year lows as the dollar traded as high as ILS3.9630. News that the country's budget deficit is set to rise‚ and geopolitical tensions stemming from Egypt and Syria‚ are weighing on the currency.

Barclays said in its daily report that yesterday’s well-received local bond auction was also supportive of a firmer rand environment.

“In particular the new R2023 and R2024 allotments received relatively elevated cover ratios‚ not to mention that we have seen a torrent of foreign inflows back into the SA bond market in June‚ about R14bn‚ after net sales in May of R5.8bn. This persistent foreign interest in the SA bond market remained the main pillar of our constructive medium-term rand view‚ and this windfall for the currency is likely to intensify in the run-up to October’s re-weighting of the World Global Bond Index‚” the bank said. - I-Net Bridge