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Johannesburg - The rand was firmer against the dollar in
early morning trade on Tuesday as it tracked a stronger euro.
"I wouldn't read too much into what may be perceived as
strength in the euro," a local currency trader said.
"There is also a rand euro decoupling going on. We may
have to start looking at the euro rand closely."
At 08:38 local time, the rand was bid at R8.1226 to the
dollar from its previous close of R8.1601. It was bid at R10.3843 to the euro
from R10.4236 before, and at R12.5613 against sterling from R12.6057
previously.
The euro was bid at $1.2792 from its previous close of
$1.2772.
RMB said in a morning note that in the currency markets
there was a lot of talk that carry trades were now being funded from the euro
rather than the US dollar.
"If so, this would add to the pressure for EUR/US$
downside. It would also change market dynamics: if the euro is the funding
currency, then EUR/US$ would rise in line with risk and vice versa - the
reverse of how we've traded since the crisis."
From a rand perspective, it meant that volatility would
switch from US$/ZAR to EUR/ZAR.
"That's what we've seen in the past few days: US$/ZAR
is happily bouncing between R8.12 and R8.20, with downside pressures this
morning, while EUR/ZAR is swinging wildly," RMB added.
Meanwhile Dow Jones Newswires reported that the euro held
onto gains versus the dollar and the yen on Tuesday in Asia as market
participants continued covering their positions betting on a further decline in
the common currency amid a relative lack of headlines on the European sovereign
debt crisis.
Still, upcoming events could pose further downside risks to
the single currency as the eurozone's debt woes remain dire.
German Chancellor Angela Merkel was expected to meet
International Monetary Fund President Christine Lagarde later in the day to
discuss the Greek bailout plan. On Thursday, the European Central Bank will
meet. Spanish bond and Italian bill auctions are also scheduled the same day.
Germany and France on Monday pressed Athens and its
bondholders to agree on a reduction of Greece's debt burden, warning that
bailout loans from the eurozone and the International Monetary Fund would
remain on hold until a deal was reached with private investors.
"After Merkel-Sarkozy, the focus will be on how markets
respond to the bond auctions, how equity markets fare and whether a shockwave
seen in the case of Hungary will occur again," said Atsushi Hirano, head
of FX sales in Japan at the Royal Bank of Scotland.
The Hungarian forint has tumbled recently after talks
between the International Monetary Fund and Hungary broke down.
Private investors holding Greek debt could be asked to
accept a revised haircut of around 60% because a previously agreed 50%
write-down was no longer seen as sufficient because of the deteriorating Greek
economy, people with direct knowledge of the matter told Dow Jones Newswires.
For currency trading, however, many market participants were
becoming reluctant about piling up additional positions betting on a further
decline in the common currency.
A source of concern, said HSBC New Zealand Chief Manager Daniel
Brdanovic, was that "everyone in the market is short euro and that means
there is potential for it to correct quite sharply."
"Trading will likely centre around euro crosses,"
Hirano from RBS said.
