The rand was stable in quiet morning trade on Tuesday‚ ahead of several European government bond auctions.
“We have several European government bond auctions today‚ which could move the euro and therefore the rand. For the moment though we are pretty stable‚” a local trader said.
At 08:30 the rand was bid at R8.4643 to the dollar from its previous close of R8.4661. It was bid at R10.5895 to the euro from its previous close of R10.5833 and at R13.1821 against sterling from R13.1879 before. The euro was bid at US$1.2513 from its previous close of $1.2501.
Absa Capital said in its morning comment that the rand continued to weaken from the week’s outset‚ predominantly because of poor international sentiment‚ which in turn was a function of growing concern that this week’s EU summit would prove inconclusive.
“We hasten to add that the rand weakened by more than its emerging-market and commodity-based currency peers‚ which could be an indication that some of the rand weakness may also be partly a function of SA-specific concerns‚” the bank said.
“In this regard‚ rand bears might have also taken encouragement from: 1) expectations that this week’s inflation and credit data are likely to further underpin market expectations of a rate cut later this year; 2) the prospect of further deterioration in the country’s trade balance; and 3) some apprehension over this week’s policy conference‚ which kicks off today. Although risk appetite remains tentative this morning‚ we suspect that there will be some consolidation in the rand until there are more fresh developments on any of the aforementioned fronts‚ given the extent to which the rand weakened yesterday‚” the bank said.
Dow Jones Newswires reported that the euro remained relatively firm versus the dollar Tuesday‚ despite a slew of Spanish bank downgrades by Moody's Investors Service‚ with many market participants trying to discern whether and how European leaders will act to ease the region's debt crisis at a summit later this week.
Moody's lowered its long-term ratings on 28 Spanish banks by one to four notches and lowered two issuer ratings‚ pointing to Spain's reduced creditworthiness and expectations its banks could face higher losses due to the their exposure to commercial real estate. The market reaction to the downgrade was limited.
Many market participants were awaiting any policy steps European Union leaders might take at a summit later this week to keep the region's debt problems from intensifying. Potential steps include market-supporting measures such as eurozone debt buying in the secondary market‚ and another dose of long-term refinancing by the European Central Bank.
Market participants are closely watching debt auctions by Spain‚ Italy and the Netherlands later in the day. - I-Net Bridge