adminJohannesburg.- THE rand was steady against the major currencies yesterday morning, holding on to last week’s gains, but analysts warned that the recovery was likely be short-lived due to the risks facing South African markets this week.
The local unit appreciated by more than 10c against the dollar on Friday as a result of risk-on trade. Data released on Friday showing that US employment grew in line with expectations in May spurred demand for risk by allaying concern that the US Federal Reserve would quicken the pace of its stimulus withdrawal.
The US unemployment rate remained unchanged at 6,3 percent in May, signalling to some that US interest rates were likely to remain lower for longer as the economy was not yet out of the woods.
The rand’s strength last week was also fuelled by the European Central Bank announcement that it would slash eurozone interest rates and pump cheap money into the region to spur economic activity.
Lower interest rates in developed markets encourage foreign demand for emerging-market assets, such as the rand, that yield higher returns.
This week local mining and manufacturing data are due for release. The data are expected to “emphasise South Africa’s dismal growth outlook, which could place the rand in jeopardy from a relative GDP (gross domestic product) differential perspective”, Barclays Africa wrote in a morning note.
The risk of a sovereign downgrade from ratings agencies Fitch and Standard & Poor’s later this week also poses a threat to the rand.
A downgrade would encourage foreign investors to demand a higher risk premium in the form of a more competitive exchange rate.
At 8.32am, the rand was at R10,5687 to the dollar, little changed from Friday’s close of R10,5858.
Against the euro, it was at R14,4238 from its previous close of R14,4388 and at R17,7742 to the pound from Friday’s close of R17,7737.
The euro was at $1,3651 from its previous close of $1,3641. – BDlive.
Online Reporter