Rand holds firm on eurozone euphoria

2012-07-27 08:47

Johannesburg - The rand held firm against the dollar in early Friday trade, taking its cue from a resurgent euro after the European Central Bank promised to hold the bloc together, boosting sentiment which has been battered by nagging debt woes.

The rand earlier climbed to a week’s high of R8.2150 to the greenback and was at R8.2235 by 06:30 GMT, up 0.26% from Thursday’s R8.2450 close.

Government bonds tracked the currency, pulling the  yield for three-year paper down two basis points to 5.34%, while the longer dated 2026 paper gave up four basis points to 7.22%.

The rand jumped two percent against the dollar on Thursday after ECB Bank President Mario Draghi pledged to do whatever was necessary to protect the eurozone from collapse.

“Support levels have been annihilated ... We are now firmly in the old R8.05-R8.35 range from a couple of weeks ago,” said Warrick Butler, a trader at Standard Bank.

“It is going to be interesting to see if the rand manages to set a new lower low with a break of R8.0500 finally over the coming weeks.”

But Butler cautioned that market euphoria over Draghi’s comments could be short-lived as there was a limit to what the ECB could do within its mandate to control events in Europe.

The rand, a very liquid currency, has taken the brunt of global market volatility over concerns that Europe’s debt problems could spread, plunging to a three year low of R8.71 to the dollar in June.

Both the government and the Reserve Bank have warned that Africa’s biggest economy is unlikely to meet this year’s growth target of 2.7%, mainly to the downturn in the eurozone which absorbs about 25% of the country’s exports.