Rand subdued as risk aversion rises

2012-04-13 12:28

Johannesburg - The rand remained subdued around the R7.90 per dollar level in noon trade on Friday as weaker Chinese growth data and renewed concerns over Spanish banks restrained the euro.

At 11:38 local time, the rand was bid at R7.9095 to the dollar from its previous close of R7.8742. It was bid at R10.4067 to the euro from R10.3804 before, and at R12.5862 against sterling from R12.5597 previously.

The euro was bid at $1.3156 from its Thursday close of $1.3182.

Standard Bank analysts noted in a morning report that after a brief return in risk appetite yesterday on resurging hopes for further quantitative easing from central banks, weaker-than-expected growth out of China restrained the rand's recent appreciation.

"Along with most other commodity currencies, it has retreated this morning," they said.

"China's growth slowed to 8.1% y/y (year-on-year) against a consensus forecast of 8.4%.

"The hangover from this morning's data is likely to weigh on the rand ahead of the weekend, with the bias stacked towards further weakness - unless the slew of speakers (including the Fed's Bernanke, ECB Knot and BoE Haldane) reinforces expectations of additional stimulus," they said.

Barclays Capital analysts said they expected the rand to weaken initially in response to the data, but they are not excessively rand bearish over the medium term because they still argue that China is likely to experience a soft landing.

Meanwhile, Dow Jones Newswires reported that the euro slipped against the dollar after China's first-quarter growth slowed to its weakest pace in three years, while the woes of Spanish banks returned after data showed they are increasingly relying on the European Central Bank for funding.

Chinese data showed gross domestic product growth slowing to 8.1% in the first quarter from 8.9% in the fourth, and below consensus expectations. The growth rate was the slowest since the first quarter of 2009.

"Today's slightly disappointing gross domestic product report adds to the risks already raised by some poor numbers earlier this year, that the bottoming-out process could be delayed until the summer," said Nikolaus Keis, economist at UniCredit Bank.

"And it stresses the necessity for more policy action by the Chinese authorities to boost domestic demand... Monetary policy will stay centre stage."

Investors are now hoping that both Chinese and US policymakers will embark on additional easing to kickstart the flagging health of the world's two strongest economies.