The volatile rand consolidated in early trade on Tuesday‚ tracking the euro which firmed overnight. The local currency lost its early gains in yesterday’s afternoon session‚ after the rescue package for Spanish banks raised more questions than answers and impacted on emerging markets. However‚ it has recovered this morning.
The 100 billion euros loan facility had given risky assets abroad a boost but with few details available speculation was rife over whether the amount is enough and how exactly the money would be given out
Further fuelling the euro zone uncertainty was the prospect of Greek elections on June 17. Until then‚ higher-yielding assets are likely to remain under stress‚ analysts observed.
In their morning report‚ Standard Bank analysts said yesterday morning’s rand gains were quickly erased in the afternoon as sentiment continued to whipsaw.
“Risk appetite first rose on the back of news of a possible bail-out of Spanish banks but then soured as euphoria faded and rumours of a possible Moody’s downgrade of Spanish debt emerged‚” the Bank said.
At 08:46 the rand was bid at R8.4210 to the dollar from Monday’s close of R8.4625. It was bid at R10.5090 to the euro from its previous close of R10.5486 and at R13.0299 against sterling from R13.0927 before. The euro was bid at US$1.2484 from Monday’s close of $1.2466.
Gold was trading at US$1587.86 per ounce.
“We are still euro dependent. The euro stabilised this morning and the rand is following it. Local markets are generally following developments in Europe at the moment‚”a local trader said.
European authorities at the weekend agreed to support Spain’s request for financial assistance to recapitalise its banks. A loan‚ estimated at EUR100bn‚ will be provided by the European Financial Stability Facility and the European Stability Mechanism. The actual size of the loan will be determined after an external private audit is completed on June 21.
Meanwhile‚ Dow Jones Newswires reports that the dollar and the euro rose against the yen Tuesday in Asia after a senior International Monetary Fund official said that the fund is sympathetic to Japan's views on the need to intervene in the currency market under certain circumstances.
"If market forces lead to disruptive flows‚ short-term smoothing is something that we would understand‚" David Lipton‚ the fund's First Deputy Managing Director‚ said in an interview with The Wall Street Journal. Mr. Lipton‚ who is in Japan on fact-finding mission‚ also said the fund sees the yen as "moderately overvalued."
The comments from the IMF official came at a time when market participants saw the dollar's ground firming against the yen with bids placed below 79.20 yen from Japanese importers‚ said Michiyoshi Kato‚ senior vice president of forex sales at Mizuho Corporate Bank.
Market conditions also helped boost the dollar versus the yen following the IMF official's comments.
Bonds quiet ahead of auction
The South African bond market was very quiet in early morning trade on Tuesday ahead of the weekly Treasury bond auction at 11:00.
The National Treasury is offering R500 million worth of R204 bonds‚ R800 million worth of R213 bonds and R800 million worth of R209 bonds.
At 09:30‚ the benchmark R157 bond was trading at 6.215 percent from Monday’s close of 6.230 percent and Friday’s close of 6.255 percent. The R207 was bid at 7.510 percent and offered at 7.480 percent from a previous close of 7.505 percent and the R186 was trading at 8.290 percent from its close of 8.295 percent.