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Photo: Financial Mail

Rand bounces back from 28-month low

Analysts say if 8,50 level is breached it would open up further weakness but if it holds, it could signal a correction is in the offing

MOYAGABO MAAKE and PHUMZA MACANDA

Published: 2011/09/23 10:10:30 AM

South Africa’s rand on Friday bounced from a 28-month low hit the previous session, in what dealers said was a correction after being oversold.

The rand has repeatedly scaled new records this week and was on track to register its worst week since October 2008.

It hit 8,4950 to the dollar late on Thursday, its weakest since May 2009.

The 8,50 level is a 38,2% fibonnacci retracement of the rand’s 2008 fall to 11,87. Should the level be breached it would open up further weakness but if it holds, it could signal a correction is in the offing.

But analysts polled by Business Day say the odds are stacked even higher against the rand after the Reserve Bank yesterday decided to leave the repo rate unchanged at 5,5%.

At 09:02 local time, the rand was trading at R8,2703, an improvement from Thursday™s New York close of R8,42.

It was bid at 11,2199 to the euro from 11,3313 before, and at 12,7731 against sterling from 12,9051 previously.

Standard Bank analysts Michael Keenan, Nomvuyo Guma, and Shireen Darmalingam said the rand has now reached an important technical juncture, which will make the actions of foreign bond holders critical to whether or not the brutal rand sell-off continued.

“Yesterday™s MPC statement was not particularly dovish and, as a consequence, local bond yields have risen, and the forward rate agreement market is slightly less convinced that the Reserve Bank will cut rates this year,” Keenan, Guma and Darmalingam said.

Rand Merchant Bank analysts John Cairns and Nema Ramkhelawan-Bhana said the rand is the worst performing emerging market currency this week, which is a “reputation unfamiliar to the local unit, which has averaged around R7,27 per dollar since its last blow out in 2009”.

“Even though the sovereign debt crisis has generated considerable equity and currency market volatility over the last 18 months, the prospect of economic stagnation and several periods of negative growth across the developed world “ combined with banking sector strain “ have given rise to acute financial market stress and a retreat to traditional safe-haven assets. This has resulted in considerable rand weakness,” Cairns and Ramkhelawan-Bhana said.

With Reuters

[email protected]

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