Rand firms on strong euro

The rand gained 1.25% against the buck, tracking a firm euro in midday trade, after a fresh pledge by European leaders to resolve the Greek crisis.

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The rand gained 1.25% against the buck, tracking a firm euro in midday trade on Monday, after a fresh pledge by European leaders to resolve the Greek crisis.

At 11:53 local time, the rand was trading at 7.8617 to the dollar from its previous close of 7.9646. It was trading at 10.6640 to the euro from 10.5345 before, and at 12.2953 against sterling from 12.4053 previously.

The euro was at US$1.3560 from US$1.3384 before.

A local dealer said that investors were taking advantage of the current levels of the local currency to buy dollars. He noted sedate trading volume however, amid a US holiday.

Forex analysts at RMB said in a morning note that the week offered less data and event risk than previous weeks - suggesting that markets might be able to settle down somewhat. “No news is good news for the rand, so maybe we can edge lower on all the main crosses. There are still some uncertainties - notably over Slovakia - and with nerves still fragile, further spikes can't be ruled out,” the analysts said.

The 103,000 increase in non-farm payrolls in September, announced on Friday, has reassured investors that the US wasn't sliding into recession. The group further pointed out that on Sunday, Chancellor Merkel and President Sarkozy promised to unveil new measures before the end of the month to resolve the Greek crisis (rumoured to involve a 60% Greek debt write-off), recapitalise banks and accelerate economic coordination in the eurozone. “This puts USD/ZAR in the 7.90 - 8.00 range this morning and looking relatively happy, even with the latest Fitch rating downgrades of Italy and Spain.”

RMB said that Troika (EU, IMF, ECB) talks with Greece would continue this week. “A decision needs to be taken next week on the payout of the next aid tranche.” The bank also noted the growing fears that China's economy could be in for a hard landing. “Worries over Chinese growth constantly do the rounds but these are now starting to impinge on market sentiment,” they said.

Dow Jones Newswires reported that in the foreign exchange markets, the euro ticked up on the prospect of bank recapitalisations in the eurozone.

Hope that governments would step in with fresh capital for Europe's beleaguered banks helped lift the euro on Monday in Asia, but investors were wary that risky currencies remained vulnerable to instability in the eurozone.

The euro rallied on news that France and Germany were working on a plan to backstop the banks and ensure that Greece remains a part of the bloc.

German Chancellor Angela Merkel and French President Nicolas Sarkozy said they would present a “comprehensive” package of new measures including a plan to recapitalise Europe's banks and proposals to coordinate the national budget policies of the eurozone's 17 member states.

But few concrete details were provided and a deal isn't expected until the Group of 20 developed and developing economies meets in France next month.

Until more details were available on that plan, and on a proposed strengthening of the European support fund to ensure that the risk of default doesn't spread to Spain and Italy, investors will be very wary of adding more risk, said Ray Farris, global head of FX strategy at Credit Suisse.

“It's still a bit of a leap of faith to go out and buy lots of risk on the expectation that European officials will get it right, both on the bank bailout issues and preventing contagion,” he said. “There is still lots of room for the policies to disappoint, so we're in kind of a holding pattern.” - I-Net Bridge

Source: http://www.iol.co.za/rand-firms-on-strong-euro-1.1153927

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