Johannesburg – The rand was pretty quiet at noon on Friday‚ trading at similar levels to Thursday’s close‚ with market participants awaiting news from a meeting of leaders from Germany‚ Italy‚ France and Spain later on Friday. This EU4 meeting will be followed by next week’s European summit‚ which might deliver positive results towards dealing with the eurozone debt debacle.
“The rand is treading water and taking a breather after big moves in the market yesterday‚” said Warrick Butler‚ rand trader at Standard Bank.
At 11:26 the rand was bid at R8.3707 to the dollar from its previous close of R8.3794. It was bid at R10.5018 to the euro from its previous close of R10.5095 and at R13.0658 against sterling from R13.0614 before.
The euro was bid at $1.2547‚ from its previous close of $1.2544.
Rand Merchant Bank said in a note on Friday that the rand was oversold‚ with Thursday’s sharp weakness well out of line with moves in international markets. From an overnight low of R8.39 (worst level)‚ it was possible for USD/ZAR to break through R8.30 on Friday‚ the bank said.
“Thursday’s vicious global moves highlighted that risk remains elevated. Some weakness in the rand is justified‚” RMB said.
“Global markets had a horrible night on the back of poor data‚ broker downgrades and fears that the new European bailout funds might be delayed.”
“Some will be quick to attribute the rand’s underperformance to the poor first quarter current account number at 4.9% of gross domestic product. That is pushing it. The number was only a little worse than expected‚ is still being easily financed‚ and is still within acceptable territory.”
Meanwhile Dow Jones newswire reported that Germany’s closely watched Ifo index of business confidence hit a two-year low in June as concerns about the eurozone debt crisis continued to weigh on sentiment‚ data from the Munich-based institute showed on Friday.
The data suggested that German economic output‚ which has long been Europe's growth driver‚ would likely stall or even shrink in the second quarter‚ confirming that Germany was no longer immune to the troubles impacting its neighbours.
Though June’s decline was not as severe as the drop in May‚ “it still signals that German industrialists have had their wake-up call‚ realising that the eurozone debt crisis will not spare the German economy‚ despite its historical resilience‚" wrote Newedge economist Annalisa Piazza in a note following the release.
The business survey showed a reading of 105.3 in June‚ following May's 106.9. Experts polled by Dow Jones Newswires had expected the index to drop to 105.6 in June. It fell to the lowest level since March 2010‚ when the index stood at 102.0.
The somewhat disappointing Ifo data join an increasing list of weak sentiment data coming out of Germany.
The weak data were thought to increase the pressure on the European Central Bank to cut interest rates at its meeting on July 5. The ECB’s main rate is already at a record low 1%.