Rand tests 11-week low

JOHANNESBURG – South Africa’s rand tested an 11-week low yesterday, knocked by sliding gold prices and further gains in the greenback against the euro, the currency of South Africa’s main trade partner.

At 08h45 the rand was trading at R7,44/US$, 1,3 per cent softer than its previous New York close and looking set to test that key support level – its weakest since June 26, according to Reuters data. Traders blamed the downward pressure mainly on gold’s plunge below US$600 an ounce for the first time in more than two months, as investors weighed bullion’s longer-term prospects in the face of a declining oil price.South Africa is the world’s main producer of the precious metal, although it only accounts for a small percentage of the country’s exports.But broad dollar strength was also a factor, with the euro falling to a six-week low of US$1,2647 before recovering to US$1,2691 as investors reassessed bets favouring the single currency.”I think with the gold price being where it is and commodity prices generally falling out of bed we will see the rand going weaker – if (it) gets through the 7,44-46 area we will quickly go to 7,54/55,” a local trader said.The rand’s weakest level this year has been R7,52/$ reached in late June.So far in 2006 it has depreciated about 15 per cent versus the dollar but it has lost more than 18 per cent on a trade-weighted basis.Traders said volume was expected to be thin when domestic markets shut, as US markets would see minimal turnover during the fifth anniversary of September 11 attacks on the United States.Most of the trade in the rand takes place offshore.South African government bonds weakened in line with the rand.Yields on the benchmark R153 bond due 2010 rose by six basis points to 8,84 per cent while yields on the R157 climbed by the same margin to 8,93 per cent.Retail sales and manufacturing data due today are seen as likely to back the case for higher interest rates in Africa’s biggest economy, which has grown faster over the past two years on rising domestic consumption and credit demand.The central bank has already raised its key repo rate by a full percentage point to 8,0 per cent in two stages since June.Nampa-ReutersTraders blamed the downward pressure mainly on gold’s plunge below US$600 an ounce for the first time in more than two months, as investors weighed bullion’s longer-term prospects in the face of a declining oil price.South Africa is the world’s main producer of the precious metal, although it only accounts for a small percentage of the country’s exports.But broad dollar strength was also a factor, with the euro falling to a six-week low of US$1,2647 before recovering to US$1,2691 as investors reassessed bets favouring the single currency.”I think with the gold price being where it is and commodity prices generally falling out of bed we will see the rand going weaker – if (it) gets through the 7,44-46 area we will quickly go to 7,54/55,” a local trader said.The rand’s weakest level this year has been R7,52/$ reached in late June.So far in 2006 it has depreciated about 15 per cent versus the dollar but it has lost more than 18 per cent on a trade-weighted basis.Traders said volume was expected to be thin when domestic markets shut, as US markets would see minimal turnover during the fifth anniversary of September 11 attacks on the United States.Most of the trade in the rand takes place offshore.South African government bonds weakened in line with the rand.Yields on the benchmark R153 bond due 2010 rose by six basis points to 8,84 per cent while yields on the R157 climbed by the same margin to 8,93 per cent.Retail sales and manufacturing data due today are seen as likely to back the case for higher interest rates in Africa’s biggest economy, which has grown faster over the past two years on rising domestic consumption and credit demand.The central bank has already raised its key repo rate by a full percentage point to 8,0 per cent in two stages since June.Nampa-Reuters