Rand firmer on improved global sentiment

2012-10-18 09:57

Johannesburg - The rand firmed in early Thursday trade as the euro held near a one-month high against the dollar, lifting investor optimism towards riskier emerging market assets despite the continued turmoil in the domestic mining sector.

The rand was 0.5% firmer at R8.5600 against the greenback at 06:40 GMT, from the close of R8.6020 in New York on Wednesday.

The currency slumped to within a whisker of R9.0 to the dollar last week - a three-and-a-half year low - amid concerns about the impact on growth of weeks of wildcat walkouts in South Africa’s mines.

Some miners are gradually returning to work, although tens of thousands in the platinum and gold sector remain on strike and Gold Fields [JSE:GFI] looks likely to fire 23 000 wildcat strikers after a 12:00 GMT deadline expires today.

The rand has rallied more than 4% since then - brushing off a ratings downgrade by S&P - buoyed by a rally in the euro after Spain avoided a ratings cut by Moody’s.

Better-than-expected housing data from the United States as well as improved industrial production and retail sales figures out of China also improved global sentiment.

Market analysts say the risk of a blow-out in the local currency has receded, with support building round the R8.58 level.

“The fact that a lot of the bad news has been washed under the carpet makes it look like we could have a little bit of a pull-back now,” said Warrick Butler, a currency trader at Standard Bank.

“But I think down to R8.45-47, you’d probably start seeing importers get back into the market again.”

Government bonds were mixed after a rally on Wednesday in line with the currency.

The yield on the 2015 bond was up 1 basis points to 5.37% and that on the 2026 paper was down 3 basis points to 7.58%.