Johannesburg - The rand was softer in late trade on Monday as risk aversion returned to global markets.
The local currency earlier ignored a limited recovery in global risk appetite in the wake of new government bail out plans for both the US and the UK banking communities.
Local dealers explained that the recovery in risk appetite was shortlived as investors remain cautious in case the new packages are really just illustrating that the risks to the real global economy are even worse than initially anticipated.
With US markets closed for a public holiday, liquidity was also a bit thin, currency dealers said.
At 16:00 the rand was bid at R10.0847 to the dollar from an overnight close of R9.9800. It was bid at R13.2779 to the euro from a previous R13.3489 and at R14.6341 against sterling from R14.8718 before.
The euro was bid at $1.3171 from $1.3351 overnight.
"The rand is slightly weaker on the back of risk aversion. Despite the bailout plans announced by the US and then the UK this morning, risk aversion is not off the cards yet. With US markets closed, liquidity is also a bit thin.
Risks abound
If the rand goes through the R10.20 level, we could see it trading at around the R10.40-R10.50 level. But for now we're looking at a range of around R9.85 to R10.20," a local currency trader said.
RMB analyst John Cairns said the rand proved resilient last week and ended on a slightly positive note and he expects this to continue into this week, with maybe the market being able to reach even R9.60.
"We reiterate however that risks abound and the pattern of trade in the early part of this year will be for rallies followed by sharp reversals," he said.
Barclays Capital analysts said in their morning report that asset markets will be particularly focused on two events this week - the UK bailout package and the Obama inauguration speech on Tuesday. Both could prove to be short-term positives for the market, they said.
"Obama's first couple of days in office could also see several policy initiatives that could provide a boost for asset markets. We expect the optimism to be short lived, however, as the US reporting season continues and is expected to remind investors that the credit crunch is not just about the financial sector, and that the US corporate sector has also taken a hit," they said.
Dow Jones Newswires reports that the UK government unveiled a second multi-billion pound bank rescue plan on Monday, in a renewed effort to shore up the financial system and revive lending by insuring banks against further losses.
The centerpiece of the new package is the treasury providing financial institutions with protection against future defaults on bank loans.
Under the scheme, banks and building societies will be charged a fee to participate. They will have legally binding obligations to lend more money to consumers and businesses.
"It is intended that the scheme will target those asset classes most affected by current economic conditions," the treasury said in a press release.
- I-Net Bridge