Rangy rand searches for direction

Johannesburg - The rand softened in midday trade on Wednesday, but a local dealer noted that it was trapped within a range providing uncertainty as to its future direction.

At 11:49 local time the rand was bid at R7.3424 to the dollar from R7.3110 at Tuesday's close. It was bid at R9.5699 to the euro from R9.5098 before and at R11.4535 against the sterling from R11.4043 at its previous close.

The euro was bid at $1.3005 from $1.2988 overnight.

A local dealer said: "The rand maintained strong levels this morning. It is currently at a level which fuels uncertainty as to its future direction. We have seen some good buying interest at R7.28-30 against the dollar.

"A range of R7.30 - R7.39 against the dollar would still be viewed as a retracement in line with the rand's recent strength," he said.

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

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

However, a break in euro/US dollar is proving very tough. The euro market is trying its 9th attempt in the past two days at the $1.3000 level. The market got temporarily to $1.3050 - and the US dollar/rand 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 euro/rand $1.3150, in turn probably implying a US dollar/rand gap to R7.25," they said.

Dow Jones Newswires reported that another attempt by the euro to establish itself over $1.30 failed Wednesday as investors appeared keen to take profits on any gains.

Overall, global market sentiment has remained positive, with sterling also rallying at the start of the session.

However, with US economic data remaining soft and the outlook for the global recovery remaining uncertain, investor confidence is fragile.

Developments in the US continue to dominate with a decline in US consumer confidence on Tuesday knocking recent hopes that the US housing market was showing
signs of recovery.

However, investors appeared keen to fight off any gloom ahead of US durable goods orders later Wednesday, which are forecast to show a healthy 1.1% rise last month, after 0.6% decline in May.

  - I-Net Bridge