SA rand backs off peak

JOHANNESBURG - South Africa's rand softened slightly in response to importer demand for dollars after reaching its best level in a month early on Tuesday, but traders said the weaker trend was likely to be short-lived.

At 1000 GMT the rand was trading at 6,32/US dollar after firming by

1,8 per cent to 6,2350 in the morning - its best level since

December 4, according to Reuters' data.

"There's been a bit of demand (for dollars) from importers but I

would imagine that exporters will come in from 6,35 upwards," a

local dealer said.

 

"I think we will drift towards 6/dollar as the euro gets

stronger, and test the previous peak".

 

The trader was referring to the 6,0910/dollar level which the

rand touched briefly on December 3; which was its strongest since

early January 2000.

 

Late last month, the currency retreated as far as 7/dollar as

players reduced risk and took profits as the year ended.

 

So far this year, the rand has firmed by more than six per cent,

buoyed by the broadly weaker dollar and surging commodity prices, a

key South African export.

 

Many traders are now convinced that global trends have

reinstated the volatile unit's bull run, although economists point

to worrying fundamentals such as the country's widening trade

deficit and declining exports.

 

"It's not just a case of dollar weakness, the rand is also

better against the euro," a local trader said.

 

"Some people are looking at yield plays; and high commodity

prices are also supporting commodity-based currencies.

 

It looks like it will go stronger, if it breaks 6,28 it may

target 5,90," he added.

 

Offshore investment banks have been buying the rand heavily

since Friday, when the dollar started to slide sharply again.

 

The greenback was hovering near recent multi-year lows against

major currencies on Tuesday, weighed down by a festering US trade

gap and the prospect of US interest rates remaining low.

 

Surging commodity prices have helped buoy the rand in the past

months.

 

Gold bullion was hovering around US$428 an ounce at midday, a

new multi-year peak.

 

South African bonds firmed on the back of the stronger rand.

 

The yield on the R150 bond was down eight basis points at 7,90

per cent.

 

The yield on the most traded R153, due 2010, was down six basis

points at 8,86 per cent.

 

Traders said bonds were also supported by speculation the unit's

strength will allow the Reserve Bank to slash its key repo rate at

its next policy meeting in February, after cutting it by 550 basis

points last year.

 

At eight percent, the interest rate differential to other

currencies is still high enough to appeal to foreign investors.

 

- Nampa-Reuters

 

"There's been a bit of demand (for dollars) from importers but I

would imagine that exporters will come in from 6,35 upwards," a

local dealer said. "I think we will drift towards 6/dollar as the

euro gets stronger, and test the previous peak". The trader was

referring to the 6,0910/dollar level which the rand touched briefly

on December 3; which was its strongest since early January 2000.

Late last month, the currency retreated as far as 7/dollar as

players reduced risk and took profits as the year ended. So far

this year, the rand has firmed by more than six per cent, buoyed by

the broadly weaker dollar and surging commodity prices, a key South

African export. Many traders are now convinced that global trends

have reinstated the volatile unit's bull run, although economists

point to worrying fundamentals such as the country's widening trade

deficit and declining exports. "It's not just a case of dollar

weakness, the rand is also better against the euro," a local trader

said. "Some people are looking at yield plays; and high commodity

prices are also supporting commodity-based currencies. It looks

like it will go stronger, if it breaks 6,28 it may target 5,90," he

added. Offshore investment banks have been buying the rand heavily

since Friday, when the dollar started to slide sharply again. The

greenback was hovering near recent multi-year lows against major

currencies on Tuesday, weighed down by a festering US trade gap and

the prospect of US interest rates remaining low. Surging commodity

prices have helped buoy the rand in the past months. Gold bullion

was hovering around US$428 an ounce at midday, a new multi-year

peak. South African bonds firmed on the back of the stronger rand.

The yield on the R150 bond was down eight basis points at 7,90 per

cent. The yield on the most traded R153, due 2010, was down six

basis points at 8,86 per cent. Traders said bonds were also

supported by speculation the unit's strength will allow the Reserve

Bank to slash its key repo rate at its next policy meeting in

February, after cutting it by 550 basis points last year. At eight

percent, the interest rate differential to other currencies is

still high enough to appeal to foreign investors. -

Nampa-Reuters

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