Rand looking vulnerable

Jul 19 2013 09:42
Johannesburg - The rand steadied against the dollar early on Friday, trading within the previous session's range but looking under pressure from a strong greenback that could see the local currency close softer heading into the weekend.

By 06:25 GMT, the rand was at R9.9250/$, not far off its R9.9060/$ close in New York on Thursday.

The rand was vulnerable because of domestic factors such as labour tensions in the mining industry that has slowed the flow of commodities for export and a trade account dependent on offshore inflows for funding.

The dollar has been boosted by expectations of the US Federal Reserve having an early withdrawal of its bond-buying programme amid signs the world's biggest economy is gaining strength.

The Fed's monetary easing has led to a flow of dollars into high-yielding emerging market assets.

The South African Reserve Bank in a post rate-setting news conference on Thursday said the current account was not as comfortably funded as before, with inflows to emerging markets slowing down and poised to reverse.

The bank left rates unchanged as expected, cutting growth forecasts and sounding concern about a bleak outlook for the mining sector, electricity supply and the inflationary impact of a weak rand.

"The Monetary Policy Committee (MPC) meeting reinforces our view that there will be no policy response to a weaker rand unless the depreciation translates into sustainable price pressures," Mike Keenan of Absa Capital said in a note to investors.

"We believe the risks are still tilted against the rand over the medium term and we would continue advocating fading rand rallies within R9.85-10.35/$ range for the remainder of the month."

Yields on government bonds were down one basis point on the benchmark 2026 issue to 7.845%.

The National Treasury is looking to place R800m of inflation-linked bonds, spread between the 2025, 2038 and a new 2046 issue.

Results of the sale are due around 09:30 GMT and a sale of Treasury Bills will follow at 10:00.

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mpc  |  currencies  |  rand



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