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Rand cautiously firm before ECB

Aug 02 2012 09:32 Reuters

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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 eurozone 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% to the dollar at R8.3280 by 06:32 GMT, compared to its previous R8.3496 close in New York on Wednesday. It shot through the R8.30 support barrier after the US 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 R8.50 levels. A positive outcome could take the rand back to R8.15 and R8.11 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 R2.6bn 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%. This will be the first switch auction since June 28.

July vehicle sales data is due at 09:00 GMT and may deliver some positive news to the market after recent numbers raised worries about consumer spending.

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