Johannesburg - The rand lost ground in morning play on Tuesday
amid press reports suggesting that the African National Congress (ANC) is
mulling a tax on volatile capital inflows to achieve a more competitive level for
the rand.
At
09:05 local time the rand was bid at R7.3014 to the dollar from R7.2935 at the previous close.
It was bid at R9.6322 to the euro from R9.6038 before and at R11.6222 against the
sterling from R11.5754 at its previous close.
The euro was bid at $1.3170 from $1.3173 overnight.
A
trader said: "We did bounce around R7.25 overnight and then lost further ground this morning
on suggestions of inflow taxes. That has contributed to a weaker rand, and to
be honest we have needed a story like this to peg back the local currency.
"We do need the rand through R7.35 against the dollar, to see any further easing though,"
he said. "The rand has lost a lot of ground against the euro this morning."
Business day reported that in a discussion document for its national general council at
the end of next month, the ANC said that high foreign capital inflows came
at a heavy price, including the increased value of the rand.
This
"limited" the overall competitiveness of the economy, making exports more expensive and
imports cheaper, it said.
The ANC
put "finding ways to ensure a more competitive currency" second on a list of short-term
core priorities to support sustainable economic growth.
"A
central debate is whether SA should tax short-run capital inflows," the document said.
RMB analysts said in a morning report that even though the US ISM manufacturing index
printed above consensus, the modest decline from 56.2 in June to 55.5 in July
represented further easing in US economic activity. The analysts said that the
figure added to a deluge of recent US data (notably employment
statistics) dulling the outlook for the US recovery.
"Unemployment concerns continue to plague the Federal Reserve with chairperson Bernanke highlighting
the adverse impact of the "slow recovery in the labour market on household
confidence and spending." Although real disposable income rose at an annualised
rate of 8% in 2Q10, today's personal income and spending data is likely to
reflect a slowdown in US consumption growth," RMB said.
"The US dollar index continues to surrender to waning investor confidence,
drifting near
three-month lows. The euro is prospering as a result and looks set to trend higher
amid improved risk appetite and favourable European bank results. Having successfully
broken euro/US dollar $1.31 a move through $1.3250 could trigger a sharp
rise to $1.35, though option barriers at $1.32 and $1.3250 could limit swift
euro gains.
"Despite meaningful support from a stronger euro, buoyant global equities and stable commodity
prices, the rand once again failed to breach US dollar/rand R7.20
yesterday taking refuge at around R7.30 this morning," RMB said.
They suggested that the move was perhaps in response to reports that the government was
contemplating the use of a Tobin tax to reduce exchange rate volatility, analogous
to the measures carried out by Brazil in 2009, where the government imposed a
2% tax on foreign portfolio investments into fixed-income and equity accounts
to stem the appreciation of the BRL.
"The proposal adds yet another twist to the rand debate but given the limited success in
Brazil, a fellow commodity-exporting nation, is unlikely to be adopted in the
near term due to the complexities involved in calculating a rate that will not
induce a massive outflow of funds, particularly from the bond market which has
accounted for almost 68% of total portfolio inflows this year. For now,
portfolio inflows into South Africa are likely to be sustained given a benign
interest environment across the developed world, which continues
to provoke a search
for yield. This should keep the rand bound to the lower end of its US dollar/rand
R7.20 - US dollar/rand R8.00 range," RMB concluded.
Dow Jones newswires reports that the risk-sensitive euro declined due to weaker-than-expected
Australian retail sales data, but it should resume rising soon as global share
markets remain solid, dealers said.
Investor appetite to buy risk-sensitive units such as the euro is growing thanks to European
banks' strong earnings reports released earlier this week, Harada said.
- I-Net Bridge