Rand at 8.48 against the US dollar

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Graphic: Renjith Krishnan.

The rand was little changed against the dollar in early trade on Friday‚ as investors waited for US Federal Reserve chairman Ben Bernanke’s speech at the Jackson Hole conference later in the day.

“The day we have been waiting for all week is finally upon us‚ but until Helicopter Ben actually speaks‚ the market will be in a holding pattern‚” a local trader said.

At 8.34am‚ the rand was bid at R8.4847 to the dollar from R8.4938 at Thursday’s close and R8.4049 at Wednesday’s close. It was bid at R10.6056 to the euro from its previous close of R10.6241 and at R13.3897 against sterling from R13.4043 before.

The euro was bid at US$1.2500 from $1.2508 at Thursday’s close and $1.2532 at Wednesday’s close.

Absa Capital said in its morning report that the rand had lived up to its high-beta status on Thursday afternoon‚ as the local unit weakened in response to a sudden rise in global risk aversion.

“This risk-off trading environment was brought about by a fresh wave of debt fears out of Spain and growing market expectations that Bernanke would refrain from signalling the need for another round of quantitative easing in today’s Jackson Hole speech‚” the bank said.

“This week’s national accounts data out of Spain implied that the country will need to tighten up on fiscal policy and require larger bail-outs.”

“On the other hand‚ this week’s US data continued to impress‚ which supports our view that further quantitative easing (QE) from the Fed remains unlikely at this stage‚” the bank said.

“Given that we think Bernanke will not signal the urgent need for QE3‚ we think the risk lies in extended selling pressure of risky assets into the weekend. This is because risky assets‚ like the rand‚ have been pricing in the possibility of QE3 over the past month.”

“However‚ we still argue that risky assets should not necessarily sell off on a sustained basis if the Fed refrains from QE3‚ because such a decision would be indicative of a better growth prognosis for the world’s largest economy‚ which in turn should be supportive of emerging-market trade‚” it said.

“Hence‚ we remain constructive about the rand over the medium term and in particular we hold a medium-term bullish view in relation to the euro.”

“Although all eyes will be on Bernanke this afternoon‚ we note that more insight into the global growth outlook will be gleaned from tomorrow’s Chinese purchasing managers index data.”

Absa said the index was expected to remain near the 50-point level marking cutoff between expansion and contraction. A higher than expected reading could spark a risk rally first thing on Monday morning‚ and a lower than expected reading a sell-off of risky assets‚ it said. - I-Net Bridge


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