Rand stays firm; eyes R7.30/$

Johannesburg - The rand retained its firmer tone and is hovering just above the R7.30 per dollar level in early trade on Wednesday. The local unit continue to track the stronger euro.

At 08:40 local time the rand was bid at R7.3301 to the dollar from 7.3110 at Tuesday's close. It was bid at R9.5458 to the euro from R9.5098 before and at R11.4294 against the sterling from R11.4043 at its previous close.

The euro was bid at $1.3022 from $1.2988 overnight.

RMB analysts said in a morning report that when EUR/USD tested $1.30 for the first time a week ago the threat was that a break would generate a spike in EUR/ZAR through R10.00.

"As yesterday's trade made very clear, the threat a EUR/USD break is now risking a move in USD/ZAR through R7.30, while EUR/ZAR is left to languish at R9.50. This highlights the general better environment for the ZAR and the bias in the unit to move stronger."

However, a break in EUR/USD is proving very tough. The EUR market is trying its 9th attempt of the past two days at the 1.3000 level. The market got temporarily to $1.3050 - and the USD/ZAR to R7.2950 - on Tuesday, but the move couldn't be sustained. It is currently back above that key level in early local trade.

"Given the repeated attempts, one must say an eventual break looks very likely. This would allow moves to EUR/ZAR1.3150, in turn probably implying a USD/ZAR gap to R7.25," they said.

International event risk is limited to the June US durable goods orders at 14:30, while local data to watch is the consumer inflation data at 11:30.

The consumer inflation index - the measure used by the South African Reserve Bank (Sarb) for its inflation target - is expected to have decreased slightly to 4.5% year-on-year (y/y) from 4.6% in May, according to a survey of leading economists by I-Net Bridge.

This figure would indicate the downward trend remains in place after the CPI edged below 6% in February after it had reached higher than 6% the previous two months. But the slower pace of disinflation also indicates a trough may be approaching.

Forecasts among the 10 economists ranged from 4.3% to 4.7%.

Dow Jones Newswires reported the euro is taking a breather after it hit an 11-week high of $1.3047 against the US dollar in New York on Tuesday. 

The euro had benefited earlier from investors turning their attention from the euro-zone sovereign debt crisis to worries that the US economy might be losing steam. 

  - I-Net Bridge