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Send  Print  Share  RSS  Twitter  27 Oct 2010

Early Rand Action

 

Johannesburg, Oct 27 (I-Net Bridge) - The rand was in a range, but with a softer bias in early trade on Wednesday as all eyes are fixed on Finance Minister Pravin Gordhan's MTBPS later in the day. The rand's softer bias was attributed to the stronger US dollar and weaker Asian equity markets.

At 08:45 local time the rand was bid at 6.9860 to the dollar from 6.9379 at the previous close. It was bid at 9.6473 to the euro from 9.6072 before and at 11.0566 against sterling from 10.9809 at its previous close.

The euro was bid at US$1.3785 from $1.3855 late on Tuesday.
Standard Bank analysts said in their morning report that the rand remains entrenched within a 6.85-7.00 range ahead of today's MTBPS.

Gordhan is expected to announce policy measures to stem rand strength, thereby preventing further job losses in the export sectors of the SA economy. "However, we do not expect radical changes to be announced at this afternoon's MTBPS," the analysts said.

"Given SA's low domestic savings rate and the fact that the Tobin taxes deployed by some emerging market countries in recent months have failed to achieve significant exchange rate depreciation, this leads us to believe that the National Treasury will try to stem rand strength by helping the SARB accumulate reserves more aggressively as well as intensify its import-intensive infrastructure programmes. Abolishment of exchange controls could, perversely, cause rand strengthen, while imposing import duties or introducing protectionism mechanisms for the export sector could turn out to be impossible to manage from an administrative point of view. We therefore believe that the risk lies in the MTBPS proving a damp squib in terms of reining in rand strength, which is why we would buy into rand weakness today," they added.

RMB analysts said in their morning report that in accordance with the G20's agreement to refrain from competitive devaluation, the National Treasury will look to implement sustainable policies to address rapid ZAR gains.

"The most apparent choice, apart from aggressive reserve accumulation and one that we continue to advocate, is the continued relaxation of exchange controls. This does not, however, suggest a complete abolishment of the existing rules as major changes are likely to be announced in the national budget next year.

"Careful attention will be paid to changes in the limits governing the amount that institutional investors, pension funds and unit trusts can invest abroad. Supposing that these limits are standardised across the board at 30% we estimate a potential net outflow of R90bn. An important caveat here is the assumption that funds are already at their limit and can invest the additional funds offshore without any other constraints.

"While the outflow would be meaningful, the relentless inflow of funds into the bond and equity markets coupled with the proceeds from pending FDI transactions could dampen the overall effect on the ZAR," they said.

According to Dow Jones Newswires, the U.S. dollar is performing well against majors after the Australian dollar weakened earlier on benign Australia inflation data.

Investors are unwilling to keep the euro near $1.40 based on the uncertainty of the Nov. 2 U.S. elections and the Nov. 2-3 Federal Reserve meetings.

"Quantitative easing is all priced in so you will need to see very soft U.S. data indicating the need for large amounts of QE, or prolonged QE, to send the dollar lower," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto. The U.S. central bank is expected to unveil a new round of quantitative easing, providing stimulus to the struggling U.S. economy.



Bids: 08:45 local time Range so far Previous Close
(06:45 GMT)

Dlr/Rand 6.9860 6.9200-7.0131 6.9379
Euro/Rand 9.6473 9.5819-9.6712 9.6072
Sterling/Rand 11.0566 10.9531-11.0918 10.9809
Euro/Dollar 1.3785 1.3782-1.3878 1.3855

End
I-Net Bridge, Tel: +27-11-280-0644, newsdesk@inet.co.za
Copyright 2010 I-Net Bridge. All rights reserved.




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