JOHANNESBURG - The South African rand firmed against the dollar on Thursday on hopes the European Central Bank would announce further monetary stimulus to support ailing euro zone economies at a policy meeting later in the session.
However, investors were expected to tread carefully and not take big positions ahead of the meeting.
The rand was up 0.26 percent to the dollar at 8.3280 by 0632 GMT, compared to its previous 8.3496 close in New York on Wednesday. It shot through the 8.30 support barrier after the U.S. Federal Reserve soured investor sentiment by not announcing monetary easing on Wednesday.
“Globally, the focus is now on the ECB, with markets pricing in some easing action, but there is the potential for disappointment. So we expect players to remain cautious ahead of the meeting,” said Christopher Shiells of Informa Global Markets.
If the ECB does not deliver as expected, the rand is likely to tumble to last week's 8.50 levels. A positive outcome could take the rand back to 8.15 and 8.11 resistance on the prospect of cheap money flooding emerging markets.
Government bonds were weaker especially in the longer end in anticipation of a switching auction where Treasury will swap 2.6 billion rand of paper maturing in two years for the 2026 issue.
Yields rose 4.5 basis points on the 2026 bond to 7.395 as more paper was likely to go into that part of the yield curve. The 2015 yield climbed 3.5 basis points to 5.555 percent. This will be the first switch auction since June 28.
July vehicle sales data is due at 0900 GMT and may deliver some positive news to the market after recent numbers raised worries about consumer spending. - Reuters