Rand firms on US election day

Johannesburg - The rand was hovering just below the R10 per dollar level in early trade on Tuesday, having weakened from Monday's level amid a firmer US dollar.

At 08:20 the rand was bid at R9.9891 to the dollar from a previous close of R10.0170. It was bid at R12.6150 to the euro from a previous R12.6199 and at R15.6967 against sterling from R15.7889 before.

The euro was bid at $1.2631 from $1.2586 overnight, while gold was quoted at $726.85 a troy ounce from $723.70/oz overnight.

RMB analysts said in their morning report markets are quiet ahead of the US presidential election today. Fresh signs that the eurozone economy is headed for recession, however, have fuelled widespread expectations that the ECB will cut interest rates aggressively and by at least 50bp this Thursday, which led to the euro plunging sharply against the dollar to $1.25.

"The USD/ZAR which remained steady in the earlier part of yesterday's trade came under pressure as the USD strengthened and is trading just above the key R10.00 level this morning.

Playing catch-up

Some catch-up following the sharp USD gains overnight will probably see the rand losing further ground today, we expect resistance at R10.20 but some retracement towards support of R9.70 is possible if the EUR/USD pulls back," RMB said.

Dow Jones Newswires reports the euro fell sharply against the yen and the dollar on Tuesday in Asia after a bigger-than-expected rate cut by the Australian central bank spawned speculation that the European Central Bank may take stronger easing steps.

The euro's tumble versus the two major counterparts was triggered mainly by the Reserve Bank of Australia's bigger-than-expected 75 basis-point rate cut to 5.25% and the bearish economic outlook expressed by RBA Governor Glenn Stevens.

After the rate announcement, the Australian dollar plunged to a low of $0.6609 to the dollar and ¥65.07 to the yen. The fall, in turn, triggered the slide in the euro and the British pound, dealers said. The pound fell to a low of $1.5614 compared with $1.5846 in New York.

"In addition to a bigger margin of rate cut, Stevens' bearish comment on the world economy spawned speculation that the ECB and the Bank of England might be forced to implement strong easing action over a long period of time," said Minoru Shioiri, senior manager of foreign exchange at Mitsubishi UFJ Securities.

Both the ECB and the BOE will hold their policy meetings Thursday. The ECB is believed to cut its policy rate by 50 basis points to 3.25%, while the BOE by the same margin to 4.00%.

- I-Net Bridge