Rand licks wounds after ECB letdown

2012-08-03 09:13

Johannesburg - The rand weakened against the dollar on Friday after the European Central Bank decided to delay any remedy for the region’s debt crisis, sending Spanish and Italian borrowing costs higher and denting investors’ appetite for risky assets.

The rand was 0.39% weaker at R8.3625 against the greenback at 06:53 GMT, from Thursday’s New York close of R8.34.

Investors had been bracing themselves for another round of bond buying from the ECB to help lower crippling borrowing costs for Spain and Italy.

But ECB President Mario Draghi indicated that any intervention would start in September at the earliest and would depend on countries in borrowing trouble making a formal request and accepting strict conditions and supervision.

“The rand is likely to remain under pressure until decisive action is taken by the world’s major central banks,” Rand Merchant Bank said in a note.

Major focus is also on US non-farm payrolls data due at 12:30 GMT.

“I would imagine non-farm payrolls later this afternoon is going to be a big driver, so I would imagine fairly quite trading until then. It will be probably range-bound trade between R8.30-R8.40” said a Johannesburg rand trader.

The rand often tracks the euro, the currency of its main trading partner. The relationship has meant a very volatile year for the currency of Africa’s biggest economy.

Government bonds firmed, with both yields on the main benchmark bonds down three basis points to 5.510% for the three year bond and 7.345% for the longer-dated 14-year paper.