Johannesburg - The rand was softer against the dollar in noon trade on Thursday in spite of a slight recovery by the euro.
"The correlation between the rand and the euro has been week
over the last few sessions," a local currency trader said.
"The rand's price is really reflecting a risk-off scenario from the major players," he added.
He noted that in the far east on Thursday morning there had
been "a decent demand for dollars," and this had forced the rand softer.
At 11:33 local time, the rand was bid at 7.4266 to the dollar
from its previous close of 7.3880. It was bid at 10.2292 to the euro
from 10.1564 before, and at 11.7217 against sterling from 11.6457
The euro was at $1.3783 from $1.3743 before.
RMB analysts said in a morning note the eurozone crisis had the ability to generate a rand blowout.
"Are we getting to that stage? In the past few days it appears
that eurozone financial stress is becoming extreme. Banks are
struggling to receive funding in US dollars, their share prices are
falling dramatically and we've seen a spate of downgrades, notably in
RMB said that most instructive was the story this morning that
BNP was set to unwind EUR70 billion in risk adjusted assets.
"Leveraged players - hedge funds etc. - may find that credit
lines are getting cut, leaving them to bail out from their carry and
high risk trades. This theory makes a lot of sense in many ways; the
problem, however, is that other assets that have seen huge speculative
investments - notably commodities - have held up. We can't see what else
is driving all the high-yielding and commodity-linked currencies
RMB added that foreigners had sold R7.5bn of South
African bonds on Tuesday (their sixth most aggressive day of selling in
our history) and another R2.6bn yesterday.
"This could reflect the deleveraging effect, although various
market participants insist that it was "real money" sellers, i.e.
pension funds or other large institutional investors who typically don't
"Other emerging markets seem to have also seen selling,
although the performance of the South African bond market has been a lot
more extreme than elsewhere."
The two days of bond selling had reversed almost the entire previous month's inflows.
This, RMB said, was a sharp reversal and was vitally important
as bond inflows had been offsetting equity inflows and so had been
holding up the rand.
Flows were very volatile "so we should be careful to jump to
conclusions but if bond inflows stop or reverse, then we'll have to
become a lot more bearish on the rand."
With the traditional relationships broken, it was harder than ever to predict the rand.
"USD/ZAR has already hit 7.48 overnight, pushing beyond
Monday's high of 7.47. The focus is now on 7.50 - the high reached very
briefly in very thin trade on the August 8 public holiday."
Meanwhile Dow Jones Newswires reported German Chancellor
Angela Merkel as saying that the euro had proved itself and was stable.
Speaking at the Frankfurt Motor Show earlier on Thursday,
Merkel repeated her demands for eurozone states to "do their homework"
to put their budgets in order and said more European integration lay
Turning to Germany's economy, Merkel said economic growth was
still "pointed up," although she saw some flattening of growth.