Rand ignores euro/dollar play

Johannesburg - The rand was steady by midday on Tuesday, shrugging off a firm dollar against the major currencies.

At 11:39 the rand was bid at R7.6331 to the dollar from R7.6247 at its previous close. It was bid at R10.3147 to the euro from its previous close of R10.3368 and was at R11.3935 against the sterling from R11.4040.

The euro was bid at $1.3477 from $1.3560 previously.

"The rand is ignoring a stronger dollar," a local currency trader said, alluding to the relative growth of the local economy compared to a host of other leading countries as a possible reason.

"I am struggling to understand why the rand has not reacted to a stronger dollar which is caning the majors, but on a relative growth comparison, the South African economy is not bad," he said.

RMB analysts said in their morning report that purchasing managers indices in the core economies are stabilising at high levels consistent with continued rates of economic growth (4% in the US, lower in Europe). The indices for emerging markets, by contrast, generally continued to improve, and none more so than South Africa where the Kagiso index jumped to its highest level in almost three years at 60.4. "As a result of the better data, emerging market currencies are suddenly outperforming, finally allowing US dollar/rand to make a much justified downside to R7.60, this despite the political concerns in the UK being yet another drag on the euro," RMB analysts John Cairns and Nema Ramkhelawan said.

"With one hundred days to go, FIFA has given South Africa 8 out of 10 for its preparations. The rapidly approaching event might also feed through some positive rand sentiment, although, the reality is that given the financial crisis tourist inflows are likely to be a lot lower than the R9bn originally assumed. With all the positive news US dollar/rand should be heading lower - the problem (as always) is that continued euro/US dollar weakness constrains. US dollar/rand R7.60 as a result looks likely to hold for today, particularly given the lack of data or event risk," RMB said.

Dow Jones Newswires reports in the currency markets, the euro lost ground against the dollar on continued concerns over sovereign debt, while sterling was also under pressure amid political uncertainty ahead of the UK general election.

At 07:15 GMT, the euro was quoted at $1.3518 from $1.3556 in late New York trade on Monday, while the pound was trading at $1.4883 from $1.4890, following a sharp drop against the dollar on Monday.

- I-Net Bridge