Johannesburg - The rand was weaker in early trade on Thursday due largely to sharp falls on global equity markets and a weaker euro ahead of the European Central Bank decision on interest rates later in the day.
The Bank of England and the European Central Bank will announce their rates decisions on Thursday - both are expected to cut rates, but the question is by how much.
At 08:20 the rand was bid at R9.8108 to the dollar from a previous close of R9.7950. It was bid at R12.5408 to the euro from a previous R12.6653 and at R15.4970 against sterling from R15.5650 before.
The euro was bid at $1.2837 from $1.2930 overnight, while gold was quoted at $738.05 a troy ounce from $738.50/oz overnight.
Global equities have turned sharply lower after the Dow slumped 5% on Wednesday. Asian markets are also off sharply, with the Nikkei closing down 6.5% and the Hang Seng off 6.4%.
RMB analysts said in their morning report that markets are once again turning their attention to the gloomy prospects for the global economy.
New deputy finance minister welcomed
With almost all international bourses now in the red, it is clear that sentiment has taken a turn for the worse, which is likely to put the rand under pressure, RMB noted.
RMB expects the rand, currently trading at R9.80, to meet resistance at R10.05 but it could find support at R9.70 this afternoon, if the statement from the ECB later today points to an aggressive interest rate cutting cycle.
"News on the domestic front is that the appointment of Nhlanhla Nene as SA's deputy finance minister yesterday was met with widespread approval. Nene, formally the chairperson of the national assembly's finance portfolio committee, is known to have a steady hand and a clear understanding of the many challenges facing the South African economy," RMB noted.
Dow Jones Newswires reports the euro fell against the dollar and the yen in Tokyo on Thursday, as speculation for bigger-than-expected interest rates cuts in Europe hurt the single currency, while tumbling Asian stocks fuelled demand for safe-haven currencies like the yen.
Traders say the euro could drop further if the European Central Bank or the Bank of England actually delivers larger-than-expected rate reductions at their policy meetings later in the global day.
Most market participants see the ECB cutting rates by half a percentage point to 3.25%. The BOE is also expected to reduce its rate by half a percentage point to 4.00%.
"If there's any surprise that could come out of the ECB meeting, it would be a larger-than-expected rate cut" given the continent's deteriorating economy, said Mamoru Arai, senior vice president of the foreign-exchange division at Mizuho Corporate Bank. "If that happens, there would likely be a round of euro
selling."
But investors may not push the euro down too much because of other potentially market-moving events in the following days, such as US jobs data due on Friday and a planned meeting next week of the Group of 20 leaders, Arai added.
- I-Net Bridge